UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 20-F
 
 
[   ]           REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[ X ]           ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 20102011
OR
OR
[    ]           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[    ]          SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934
Date of event requiring this shell company report ……………………
 
For the transition period from __________ to __________.
Commission File No. 001-14835
 
NORTHCORE TECHNOLOGIES INC.
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
ONTARIO, CANADA
(Jurisdiction of incorporation or organization)
302 The East Mall, Suite 300 Toronto, Ontario M9B 6C7
(Address of principal executive offices)
 
Securities registered or to be registered pursuant to Section 12(b) of the Act.
None
 
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Common Shares
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report.
 
172,169,836226,597,702 Common Shares as of December 31, 20102011
 
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act
Yes    _____ No  ___X___
 
 
 
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If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934.
Yes    _____ No  __X__
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes     X        No  ______
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated filer  [   ]          Accelerated filer [    ]          Non-accelerated filer [  X  ]
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP      [    ]        International Financial Reporting Standards as issued                                         Other   [  X ]
                                          by the International Accounting Standards Board       [  X  ]
Indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ______    Item 18 X
 
If this an annual report, indicate by check mark whether the registrant is a shell company (as determined in Rule 12b-2 of the Exchange Act).
Yes  ______    No  __X__


 
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NORTHCORE TECHNOLOGIES INC.
 
Annual Report on Form 20-F for the Fiscal Year
Ended December 31, 20102011
 
FORWARD LOOKING STATEMENTS
 
From time to time, we make oral and written statements that may be considered "forward looking statements" (rather than historical facts).  We are taking advantage of the "safe-harbour" provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements we may make from time to time, including the forward-looking statements in this Annual Report.
 
You can identify these statements when you see words such as "may", "expect", "anticipate", "estimate", "believe", "intend", and other similar expressions.  These forward-looking statements relate, among other items, to:
 
 ·our future capital needs;
 ·future expectations as to profitability and operating results;
 ·our ability to further develop business relationships and revenues;
 ·our expectations about the markets for our products and services;
 ·acceptance of our products and services;
 ·competitive factors;
·our ability to repay debt;
 ·our ability to maintain operating expenses;
 ·our ability to attract and retain employees;
 ·new products and technological changes;
 ·our ability to develop appropriate strategic alliances;
 ·protection of our proprietary technology;
 ·our ability to acquire complementary products or businesses and integrate them into our business;
 ·our ability to increase revenue from existing products and services;
 ·our ability to expand the scope of our product offering; and
 ·geographic expansion of our business.

 
We have based these forward-looking statements largely on our current plans and expectations.  Forward-looking statements are subject to risks and uncertainties, some of which are beyond our control.  Our actual results could differ materially from those described in our forward-looking statements as a result of the factors described in the “Risk Factors” included elsewhere in this Annual Report, including, among others:
 
 ·the timing of our future capital needs and our ability to raise additional capital when needed;
 ·our ability to repay our debt to lenders;
·increasingly longer sales cycles;
 ·potential fluctuations in our financial results and our difficulties in forecasting;
 ·volatility of the stock markets and fluctuations in the market price of our stock;
 ·the ability to buy and sell our shares on the Over the Counter Bulletin Board;
 ·our ability to compete with other companies in our industry;
 ·our dependence upon a limited number of customers;
 ·our ability to retain and attract key personnel;
 ·risk of significant delays in product development;
 ·failure to timely develop or license new technologies;

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 ·risks relating to any requirement to correct or delay the release of products due to software bugs or errors;
 ·risk of system failure or interruption;
 ·risks associated with any further dramatic expansions and retractions in the future;
 ·risks associated with international operations;
 ·problems which may arise in connection with the acquisition or integration of new businesses, products, services, technologies or other strategic relationships;
 ·risks associated with protecting our intellectual property, and potentially infringing the intellectual property rights of others;
 ·fluctuations in currency exchanges;
 ·risks to holders of our common shares following any issuance of our preferred shares; and
 ·the ability to enforce legal claims against us or our officers or directors.


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We do not have, and do not undertake, any obligation to publicly update or revise any forward-looking statements contained in this Annual Report, whether as a result of new information, future events or otherwise.  Because of these risks and uncertainties, the forward-looking statements and circumstances discussed in this Annual Report might not transpire.
 
Trademarks or trade names, which we own and are used in this Annual Report, include: DYN@MIC BUYER™, DYN@MIC SELLER™ and WORKING CAPITAL ENGINE™. Each trademark, trade name, or service mark of any other company appearing in this Annual Report belongs to its holder.
 

 
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TABLE OF CONTENTS

                     

PART I  Page
ITEM 1- IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS7
ITEM 2- OFFER STATISTICS AND EXPECTED TIMETABLE7
ITEM 3- KEY INFORMATION7
A.Selected Financial Data7
B.Capitalization and Indebtedness9
C.Reasons For The Offer And Use Of Proceeds9
D.Risk Factors9
ITEM 4- INFORMATION ON THE COMPANY1716
A.History and Development of the Company17
B.Business Overview2120
C.Organizational Structure30
D.Property, Plant and Equipment30 
ITEM 4A - UNRESOLVED STAFF COMMENTS30
ITEM 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS - 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND  RESULTS OF OPERATIONS30
A.Operating Results32
B.Liquidity and Capital Resources  3736
C.Research and Development, Patents, and Licenses, Etc  4038
D.Trend Information  4038
E.Off-Balance Sheet Arrangements  4038
F.Tabular Disclosure of Contractual Obligations  4139
ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES4140
A.Directors And Senior Management  4140
B.Compensation43
C.Board Practices44
C.1. Audit Committee Information45 
D.Employees  4746
E.Share Ownership47
ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS48 
A.Major Shareholders48
B.Related Party Transactions48
ITEM 8 - FINANCIAL INFORMATION48
ITEM 9 - THE OFFER AND LISTING  4948
ITEM 10 - ADDITIONAL INFORMATION51

 
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ITEM 10 - ADDITIONAL INFORMATION  52
A.Share Capital5251
B.Memorandum and Articles of Association5251
C.Material Contracts5554
D.Exchange Controls5655
E.Taxation5655
F.Dividends and Paying Agents6260
G.Statements by Experts  6260 
H.Documents on Display6261
I.Subsidiary Information  6361 
ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK  6361 
ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 63  6361 
PART II                                                          6361 
ITEM 13 - DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES  6361 
ITEM 14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS 63
   AND USE OF PROCEEDS6361
ITEM 15 – CONTROLS AND PROCEDURES  6361 
ITEM 16 [RESERVED]  6463 
ITEM 16  6463 
A.Audit Committee Financial Expert  6463 
B.Code of Ethics  6463 
C.Principal Accountant Fees and Services  6463 
D.Exemptions from the Listing Standards For Audit Committees  6563 
E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers  6563 
PART III                                                                                                             6563 
ITEM 17- FINANCIAL STATEMENTS  6564 
ITEM 18 - FINANCIAL STATEMENTS  6564 
ITEM 19 – EXHIBITS  6564 
 
6
 
 
Unless otherwise indicated, all references in this Annual Report to “dollars” or “$” are references to Canadian dollars. Our financial statements are expressed in Canadian dollars. Except as otherwise noted, certain financial information presented in this Annual Report has been translated from Canadian dollars to U.S. dollars at an exchange rate of Cdn$1.00090.9835 to US$1.00 (or US$0.99901.0168 to Cdn$1.00), the noon buying rate in New York City on December 31, 20102011 for cable transfers in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York.  These translations are not intended to suggest that Canadian dollars have been or could be converted into U.S. dollars at that or any other rate.

 
PART I
 
ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
 
 
Not applicable.
 
ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE
 
Not applicable.
 
 
ITEM 3 - KEY INFORMATION
 
A.SELECTED FINANCIAL DATA
 
The selected financial data set forth below should be read in conjunction with, and is qualified by reference to, our consolidated financial statements and the related notes, and the section "Operating and Financial Review and Prospects" included elsewhere in this Annual Report.  The consolidated statement of operations data for the years ended December 31, 2010, 2009,2011 and 20082010 and consolidated balance sheetstatements of financial position data as of December 31, 20102011 and 2009,2010, as set forth below, are derived from our audited consolidated financial statements and the related notes included elsewhere in this Annual Report.Report in accordance with International Financial Reporting Standards. The consolidated statement of operations and comprehensive loss data for the years ended December 31, 20072009, 2008 and 20062007 and the consolidated balance sheetstatements of financial positions data as at December 31, 2009, 2008, and 2007 and 2006 hashave been derived from our audited consolidated financial statements for those years in accordance with Canadian generally accepted accounting principles and reconciled to accounting principles generally accepted in the United States of America, which are not included in this Annual Report but have previously been filed with the Commission.
 
We have prepared ourBasis of Presentation

The accompanying consolidated financial statements represent the first annual financial statements of the Company and its subsidiary prepared in accordance with International Financial Reporting Standards (IFRS).  The Company adopted IFRS in accordance with IFRS 1, First-time Adoption of International Reporting Standards.  The first date at which IFRS was applied was January 1, 2010.  In accordance with IFRS, the Company has:

·Provided comparative financial information;
·Applied the same accounting policies throughout all periods presented;
·Retrospectively applied all effective IFRS standards as of December 31, 2011, as required; and
·Applied certain mandatory exceptions and optional exemptions as applicable for first time IFRS adopters.

The Company’s consolidated financial statements were previously prepared in accordance with Canadian generally accepted accounting principles generally accepted in Canada, which differ in certain respects from accounting principles generally accepted in(“previous GAAP”).  The adoption of IFRS has not had a material impact on the United States.  However, as applied to us, for all fiscal periods for which financial data is presented in this Annual Report, Canadian GAAPCompany’s operations, strategic decisions, cash flow and U.S. GAAP were substantially identical in all material respects, except as disclosed in Note 21 of our consolidated financial statements.capital expenditures.

7
 
Historical results are not necessarily indicative of results to be expected for any future period.
 
7
Year Ended December 31,
2010
(Cdn$)
2009
(Cdn$)
2008
(Cdn$)
2007
(Cdn$)
2006
(Cdn$)
 (in thousands except for per share data)    
Consolidated Statement of Operations Data (Canadian GAAP):               
 Year Ended December 31, 
 2011
(Cdn$)
  2010
(Cdn$)
  2009
(Cdn$)
  2008
(Cdn$)
  2007
(Cdn$)
 
 (IFRS)  (CANADIAN GAAP)
    (in thousands except for per share data)   
Consolidated Statement of Operations and
Comprehensive Loss Data
               
Revenues  636   759   741   1,166   1,073   785   582   759   741   1,166 
Income from GE Asset Manager, LLC  69   43   -   -   - 
Operating expenses:                                        
General and administrative  1,451   1,269   1,485   1,703   1,790   1,670   1,440   1,269   1,485   1,703 
Customer service and technology  734   738   689   762   664   726   734   738   689   762 
Sales and marketing  188   181   117   276   377   260   188   181   117   276 
Stock-based compensation  358   183   43   94   137   1,873   517   183   43   94 
Depreciation and amortization  22   29   33   39   92 
Interest expense  314   768   729   604   783 
Depreciation  32   22   29   33   39 
Finance costs  227   269   768   729   604 
Other expenses (net)  487   -   -   -   -   -   487   -   -   - 
Total expenses  3,554   3,168   3,096   3,478   3,843   4,788   3,657   3,168   3,096   3,478 
Loss from continuing operations  (2,918)  (2,409)  (2,355)  (2,312)  (2,770)
Income from discontinued operations  -   -   -   -   2,122 
Loss for the year  (2,918)  (2,409)  (2,355)  (2,312)  (648)
Loss from operations  (3,934)  (3,032)  (2,409)  (2,355)  (2,312)
Loss per share (1)
  (0.018)  (0.017)  (0.022)  (0.025)  (0.008)  (0.020)  (0.019)  (0.017)  (0.022)  (0.025)
                                        
Weighted average number of common shares  162,899   140,434   108,861   93,094   79,933   196,180   162,899   140,434   108,861   93,094 
                    
Consolidated Statement of Operations Data (U.S. GAAP): (3)
                    
Loss for the year as reported under U.S. GAAP   $(2,887)    $(2,914)   $(2,285)    $(2,204)   $(1,270)  

 
  As at December 31, 
  
2010
(Cdn$)
  
2009
(Cdn$)
  
2008
(Cdn$)
  
2007
(Cdn$)
  
2006
(Cdn$)
 
  (in thousands) 
Consolidated Balance Sheet Data (Canadian GAAP): (2)
               
Total assets  314   1,105   812   687   813 
Shareholders’ deficiency  (1,429)  (16)  (2,403)  (1,600)  (2,255)
                     
Consolidated Balance Sheet Data (U.S. GAAP): (3)
                    
Total assets  323   1,124   872   731   882 
Shareholders’ deficiency  (1,712)  (431)  (3,283)  (2,037)  (2,458)
    
     As at December 31, 
  2011
(Cdn$)
  2010
(Cdn$)
  2009
(Cdn$)
  2008
(Cdn$)
  2007
(Cdn$)
 
  (IFRS)  (CANADIAN GAAP) 
     (in thousands) 
Consolidated Statement of Financial Position Data (2)
 
               
Total assets  2,909   284   1,105   812   687 
Total liabilities  415   1,857   1,121   3,215   2,287 
Shareholders’ equity (deficiency)  2,494   (1,573)  (16)  (2,403)  (1,600)
Total liabilities and shareholders’ equity  2,909   284   1,105   812   687 
(1)
(1)           For each fiscal year, the Company excluded the effect of all convertible debt, stock options and share-purchase warrants in the calculation of diluted loss per share, as their impact would have been anti-dilutive.
(2)The Company has not paid dividends since its formation.
(3)The significant differences between Canadian GAAP and U.S. GAAP arise primarily from the accounting differences relating to the secured subordinated notes issued. Refer to Note 21 (b) of the consolidated financial statements for details.

(2)           The Company has not paid dividend since its formation.


 
8
 
 
EXCHANGE RATES
 
The following tables set forth, for the periods indicated, certain exchange rates based on the noon buying rate in New York City for cable transfers in Canadian dollars, as certified for customs purposes by the Federal Reserve Bank of New York.  Such rates are the number of U.S. dollars per one Canadian dollar and are the inverse of the rates quoted by the Federal Reserve Board of New York for Canadian Dollars per U.S. $1.00.  On February 28, 2011,29, 2012, the exchange rate was CAD$1.00 = US$1.02700.9956.
 
 Year Ended December 31, Year Ended December 31,
Rate 2010  2009  2008  2007  2006 2011  2010  2009  2008  2007
                            
Average during year (1)  0.9663   0.8799   0.9297   0.9419   0.8844   1.0151   0.9663   0.8799   0.9297   0.9419 
(1) The average rate is the average of the exchange rates on the last day of each month during the year.(1) The average rate is the average of the exchange rates on the last day of each month during the year.  (1) The average rate is the average of the exchange rates on the last day of each month during the year.  

 
MonthHigh during monthLow during month
   
September 20111.01910.9626
October 20111.00580.9430
November 20111.00680.9536
December 20110.98950.9613
January 20121.00140.9882
February 20121.00590.9950
MonthHigh during monthLow during month
   
September 20100.97860.9591
October 20100.99640.9689
November 20100.99990.9766
December 20100.99910.9294
January 20111.01380.9999
February 20111.02931.0045

 
B.CAPITALIZATIONB.CAPITALIZATION AND INDEBTEDNESS
 
Not applicable.
 
C.REASONSC.REASONS FOR THE OFFER AND USE OF PROCEEDS.
 
Not applicable.
 
D.RISKD.RISK FACTORS
 
The following is a summary of certain risks and uncertainties, which we face in our business.  This summary is not meant to be exhaustive.  These Risk Factors should be read in conjunction with other cautionary statements, which we make in this Annual Report and in our other public reports, registration statements and public announcements.
 
WE WILL NEED ADDITIONAL CAPITAL AND IF WE ARE UNABLE TO SECURE ADDITIONAL FINANCING WHEN WE NEED IT, WE MAY BE REQUIRED TO SIGNIFICANTLY CURTAIL OR CEASE OUR OPERATIONS
 
We have not yet realized profitable operations and have relied on non-operational sources of financing to fund our operations.  Since we began our operations, we have been funded primarily through the sale of securities to investors in a series of private placements, convertible debt instruments, sales of equity to, and investments from, strategic partners, gains from investments, option exercises, a rights offering and, to a limited extent, through cash flow from operations.  While our Company’s financial statements for the year-ended December 31, 2010,2011, have been prepared on the basis of accounting principles applicable to a going concern, certain adverse conditions and events cast substantial doubt upon the validity of this assumption. Our ability to continue as a going concern will be dependent on management’s ability to successfully execute its business plan including a substantial increase in revenue as well as maintaining operating expenses at or near the same level as 2010.2011.  We cannot provide assurance that we will be able to execute on our business plan or assure that efforts to raise additional financings would be successful.
 

 
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Management believes that continued existence beyond 20102011 is dependent on its ability to increase revenue from existing products, and to expand the scope of its product offering which entails a combination of internally developed software and partnerships with third parties. Management further believes that ability to raise additional financing during 2011 is also critical for continued existence of the Company. As of December 31, 2010,2011, we had cash on hand of approximately $90,000.$1,760,000.
 
We do not have any committed sources of additional financing at this time and we are uncertain whether additional funding will be available when we need it on terms that will be acceptable to us or at all except as mentioned in Note 22 to the consolidated financial statements.us. If we are not able to obtain financing when we need it, we would be unable to carry out our business plan and would have to significantly curtail or cease our operations. We have included in Note 2 to our financial statements for the year ended December 31, 2010,2011, a discussion about our ability to continue as a going concern. Potential sources of financing include strategic relationships, public or private sales of our shares, debt, convertible securities or other arrangements. If we raise funds by selling additional shares, including common shares or other securities convertible into common shares, the ownership interests of our existing shareholders will be diluted.  If we raise funds by selling preferred shares, such shares may carry more voting rights, higher dividend payments or more favorable rights upon distribution than those for the common shares.  If we incur debt, the holders of such debt may be granted security interests in our assets.  Because of our potential long-term capital requirements, we may seek to access the public or private equity or debt markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. If we fail to obtain financing when we need it, it would have a material adverse effect on our business, financial condition, cash flows and results of operations.
 
WE ARE NOT PROFITABLE AND WE MAY NEVER BECOME PROFITABLE
 
We have accumulated losses of approximately $118.939$122.977 million as of December 31, 2010.2011.  For the year ended December 31, 20102011 our loss was $2.918$3.934 million. We have never been profitable and expect to continue to incur losses for the foreseeable future. We cannot assure you that we will earn profits or generate positive cash flows from operations in the future.
OUR ABILITY TO REPAY OUR DEBT TO LENDERS
We have not yet realized profitable operations and have relied on non-operational sources of financing to fund our operations. We have been funded primarily through the sale of securities to investors in a series of private placements, which have included a series of convertible debt instruments. As these debt instruments become due we cannot provide assurance that we will have the funds on hand to repay lenders. We may need to renegotiate or restructure certain debt arrangements, as they become due in order to maintain operations.
THE LIMITED OPERATING HISTORY OF OUR JOINT VENTURE WITH GE COMMERCIAL FINANCE HAS MADE US DEPENDENT UPON A SMALLER CUSTOMER BASE OF LARGER CLIENTS
In December 2003 we formed the joint venture, GE Asset Manager, LLC with the General Electric Capital Corporation, through its business division GE Commercial Finance, Capital Solutions (“GE” or “GE Commercial Finance”). Growing this business venture has required us to shift focus from a broad spectrum of customers to focusing on a small number of large clients. By further investing in our relationship with GE Commercial Finance, we are increasing our business risk by becoming substantially dependent on the business generated by the joint venture.
WE ARE A GROWTH STAGE COMPANY AND ARE SUBJECT TO THE RISKS INHERENT IN A NEW BUSINESS
Our business and prospects must be considered in light of the risks, uncertainties and expenses frequently encountered by companies in their early stages of development, particularly companies in new and rapidly evolving markets.  Our business strategy may not be successful and we may not successfully address those risks.

10

 
WE MAY EXPERIENCE INCREASINGLY LONGER SALES CYCLES
 
A significant portion of our revenue in any quarter is derived from a relatively small number of contracts.  We often experience sales cycles of six (6) to eighteen (18) months.  If the length of our sales cycles increases, our revenues may decrease and our quarterly results would be adversely affected.  In addition, our current and future expense levels are based largely on our investment plans and estimates of future revenues and are, to a large extent, fixed.  We may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Any significant shortfall in revenues relative to our planned expenditures would have a material adverse effect on our business, financial condition, cash flows and results of operations.
 
POTENTIAL FLUCTUATIONS IN OUR FINANCIAL RESULTS MAKE FINANCIAL FORECASTING DIFFICULT
 
Our operating results have varied on a quarterly basis in the past and may fluctuate significantly as a result of a variety of factors, many of which are outside our control. Factors that may affect our quarterly operating results include:
 
 ·General economic conditions as well as economic conditions specific to our industry;
 ·Long sales cycles, which characterize our industry;
 ·Implementation delays, which can affect payment and recognition of revenue;
 ·Any decision by us to reduce prices for our solutions in response to price reductions by competitors;
 ·The amount and timing of operating costs and capital expenditures relating to monitoring or expanding our business, operations and infrastructure; and
 ·The timing of, and our ability to integrate, any future acquisition, technologies or products or any strategic investments or relationships into which we may enter.

10
Due to these factors, our quarterly revenues and operating results are difficult to forecast.  We believe that period-to-period comparisons of our operating results may not be meaningful and should not be relied upon as an indication of future performance. In addition, it is likely that in one or more future quarters, our operating results will fall below the expectations of securities analysts and investors.  In such event, the trading price of our common shares would almost certainly be materially adversely affected.

OUR SHARE PRICE HAS FLUCTUATED SUBSTANTIALLY AND MAY CONTINUE TO DO SO
 
The trading price of our common shares on The Toronto Stock Exchange and on the Nasdaq Over the Counter Bulletin Board (“OTCBB”) has fluctuated significantly in the past and could be subject to wide fluctuations in the future. The market prices for securities of technology companies have been highly volatile. These companies have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to their operating performance. Broad market and industry factors may materially and adversely affect the market price of our common shares, regardless of our operating performance. In addition, fluctuations in our operating results and concerns regarding our competitive position can have an adverse and unpredictable effect on the market price of our shares.
 
In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted against that company. Such litigation, if instituted against us, could result in substantial costs and a diversion of management’s attention and resources, which could have a material adverse effect on our business, results of operations, cash flow, financial condition and prospects. If we do not prevail in any such action, which may be brought, we could be forced to pay damages.

11

 
THE ABILITY TO BUY OR SELL OUR COMMON SHARES ON THE OTCBB MAY BE LIMITED
 
Our common shares trade on the OTCBB.  The OTCBB is generally considered to be a less efficient market than the Nasdaq National Market or the Nasdaq SmallCap Market on which our shares previously traded.  As a result, the ability to buy or sell our common shares on the OTCBB may be limited.  In addition, since our shares are no longer listed on the Nasdaq National Market or Nasdaq SmallCap Market, our shares may be subject to the “penny stock” regulations described below.  De-listing from the Nasdaq National Market and the Nasdaq SmallCap Market does not affect the listing of our common shares on The Toronto Stock Exchange.
 
OUR COMMON SHARES ARE SUBJECT TO “PENNY STOCK” REGULATIONS WHICH MAY AFFECT YOUR ABILITY TO BUY OR SELL OUR COMMON SHARES
 
Our shares are characterized as “penny stocks” which may severely affect market liquidity.  The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure relating to the market for penny stocks in connection with trades in any stock defined as a penny stock.
 
Securities and Exchange Commission regulations generally define a penny stock to be an equity security that has a market price of less than US$5.00 per share, subject to certain exceptions.  The regulations require, prior to any transaction involving a penny stock, delivery of a disclosure schedule explaining the penny stock market and the risks associated therewith.  The penny stock regulations may adversely affect the market liquidity of our common shares by limiting the ability of broker/dealers to trade the shares and the ability of purchasers of our common shares to sell in the secondary market.  Certain institutions and investors will not invest in penny stocks.
 
THE MARKETS IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE
 
The market for asset lifecycle management solutions is rapidly evolving and intensely competitive. We face significant competition in each segment of our business (asset sourcing, procurement, asset management and asset disposition).  We expect that competition will further intensify as larger existing companies expand their product lines and industry consolidation accelerates.
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Many of our competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we. We cannot be certain that we will be able to compete with them effectively. If we fail to do so, it would have a material adverse effect on our business, financial condition, cash flows and results of operations.
 
IMPACT OF CURRENT GLOBAL ECONOMIC CONDITIONS
 
Recently, global financial markets and economic conditions have been, and may continue to be, disrupted and volatile. As a result of concerns about the stability of financial markets generally and the solvency of creditors specifically, the cost of obtaining money from the credit markets generally has increased as many lenders and institutional investors have increased interest rates, enacted tighter lending standards, refused to refinance existing debt on terms similar to current debt and in some cases, ceased to provide funding to borrowers. Concerns about the current economic situation may also have the effect of tightening the equity markets making any equity based financing which we may desire to undertake difficult to obtain, or obtainable only on terms and conditions which we may find burdensome or unacceptable.  These issues, along with the current weak economic conditions have made, and may continue to make, it more difficult for us to obtain necessary funding on reasonable and competitive terms, and as a result, our ability to continue our businesses, pursue improvements, and continue future growth may be limited or curtailed.  In addition, current weak economic conditions may negatively impact our customers’ ability to obtain financing and fund their businesses.  As a result, we may incur decreases in sales, which will negatively impact our revenue.
 

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WE DEPEND HEAVILY ON A SMALL NUMBER OF CUSTOMERS, AND IF WE LOSE ANY OF THEM OR THEY REDUCE THEIR BUSINESS WITH US, WE WOULD LOSE A SUBSTANTIAL PORTION OF OUR REVENUES
 
In 2010,2011, two customers accounted for 50 percent and 31 percent, respectively (2010- one customer accounted for 6975 percent (2009–two customers accounted for 62 percent, and 19 percent, respectively) of total revenues. If our relationships with any of these customers is severed or meaningfully altered, we would experience a significant decline in our performance, particularly through reduced revenues, which would have a material adverse effect on our business, financial condition, cash flows and results of operations.
 
WE MAY NOT BE ABLE TO RETAIN OR ATTRACT THE HIGHLY SKILLED PERSONNEL WE NEED
 
Our success is substantially dependent on the ability and experience of our senior management and other key personnel.  We do not have long-term employment agreements with any of our key personnel and maintain no “key person” life insurance policies.
 
We may need to hire new or additional personnel to respond to attrition or future growth of our business.  However, there is significant competition for qualified personnel. We cannot be certain we will be able to retain existing personnel or hire additional, qualified personnel when needed.
 
SIGNIFICANT DELAYS IN PRODUCT DEVELOPMENT WOULD HARM OUR REPUTATION AND RESULT IN LOSS OF REVENUE
 
If we experience significant product development delays, our position in the market would be harmed, and our revenues could be substantially reduced, which would adversely affect our operating results.  As a result of the complexities inherent in our software, major new product enhancements and new products often require long development and test periods before they are released.  On occasion, we have experienced delays in the scheduled release date of new or enhanced products, and we may experience delays in the future.  Delays may occur for many reasons, including an inability to hire a sufficient number of developers, discovery of bugs and errors or a failure of our current or future products to conform to industry requirements.  Any such delay, or the failure of new products or enhancements in achieving market acceptance, could materially impact our business and reputation and result in a decrease in our revenues.
 
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WE MAY HAVE TO EXPEND SIGNIFICANT RESOURCES TO KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE
 
Our industry is characterized by rapid technological change, changes in user and customer requirements, frequent new service or product introductions embodying new technologies and the emergence of new industry standards and practices.  Any of these could hamper our ability to compete or render our proprietary technology obsolete.  Our future success will depend, in part, on our ability to:
 
 ·Develop new proprietary technology that addresses the increasingly sophisticated and varied needs of our existing and prospective customers;
 ·Anticipate and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis;
 ·Continually improve the performance, features and reliability of our products in response to evolving market demands; and
 ·License leading technologies.
 
We may be required to make substantial expenditures to accomplish the foregoing or to modify or adapt our services or infrastructure. If we are unable to do so, it would have a material adverse effect on our business, financial condition, cash flows and results of operations.

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OUR BUSINESS COULD BE SUBSTANTIALLY HARMED IF WE HAVE TO CORRECT OR DELAY THE RELEASE OF PRODUCTS DUE TO SOFTWARE BUGS OR ERRORS
 
We sell complex software applications and services.  Our applications may contain undetected errors or bugs when first introduced or as new versions are released.  Our software products may also contain undetected viruses.  Further, software we license from third parties and incorporate into our products may contain errors, bugs or viruses.  Errors, bugs and viruses may result in any of the following:
 
·      Adverse customer reactions;·      Negative publicity regarding our business and our products;
·Adverse customer reactions;
·      Harm to our reputation;
·Negative publicity regarding our business and our products;
·      Loss of or delay in market acceptance;
·Harm to our reputation;
·      Loss of revenue or required product changes;
·Loss of or delay in market acceptance;
·      Diversion of development resources and increased development expenses;
·Loss of revenue or required product changes;
·      Increased service and warranty costs;
·Diversion of development resources and increased development expenses;
·      Legal action by our customers; and
·Increased service and warranty costs;
·      Increased insurance costs.
·Legal action by our customers; and
·Increased insurance costs.

SYSTEMS DEFECTS, FAILURES OR BREACHES OF SECURITY COULD CAUSE A SIGNIFICANT DISRUPTION TO OUR BUSINESS, DAMAGE OUR REPUTATION AND EXPOSE US TO LIABILITY
 
We host certain websites and applications for our customers.  Our systems are vulnerable to a number of factors that may cause interruptions in our ability to enable or host solutions for third parties, including, among others:
 
 ·Damage from human error, tampering and vandalism;
 ·Breaches of security;
 ·Fire and power losses;
 ·Telecommunications failures and capacity limitations; and
 ·Software or hardware defects.
 
Despite the precautions we have taken and plan to take, the occurrence of any of these events or other unanticipated problems could result in service interruptions, which could damage our reputation, and subject us to loss of business and significant repair costs.  Certain of our contracts require that we pay penalties or permit a
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customer to terminate the contract if we are unable to maintain minimum performance levels. Although we continue to take steps to enhance the security of our systems and ensure that appropriate back-up systems are in place, our systems are not now, nor will they ever be, fully secure.
 
OUR BUSINESS HAS UNDERGONE DRAMATIC EXPANSION AND RETRACTION PHASES SINCE OUR FORMATION.  WE MAY NOT BE ABLE TO MANAGE FURTHER DRAMATIC EXPANSIONS AND RETRACTIONS IN THE FUTURE
 
Our business has undergone dramatic expansion and retraction since our formation, which has placed significant strain on our management resources.  If we should grow or retract dramatically in the future, there may be further significant demands on our management, administrative, operating and financial resources.  In order to manage these demands effectively, we will need to expand and improve our operational, financial and management information systems and motivate, manage and retain employees.  We cannot assure you that we will be able to do so, that our management, personnel or systems will be adequate, or that we will be able to achieve levels of revenue commensurate with the resulting levels of operating expenses.
 

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SALES TO CUSTOMERS OUTSIDE CANADA ACCOUNT FOR A SIGNIFICANT PORTION OF OUR REVENUE, WHICH EXPOSES US TO CERTAIN RISKS
 
While we currently operate out of Canada, many of our customers are based outside of Canada. There are risks inherent in doing business outside Canada, including:
 
 ·Differing laws and regulatory requirements;
 ·Political and economic risks;
 ·Currency and foreign exchange fluctuations and controls;
 ·Tariffs, customs, duties and other trade barriers;
 ·Longer payment cycles and problems in collecting accounts receivable;
 ·Potentially adverse tax consequences; and
 ·Any of these risks could adversely affect the success of our business;
 
PART IACQUISITIONS OF COMPANIES OR TECHNOLOGIES MAY RESULT IN DISRUPTIONS TO OUR BUSINESS AND/OR DISTRACTIONS FOR OUR MANAGEMENT
 
In the future, we may seek to acquire other businesses or make investments in complementary businesses or technologies. We may not be able to acquire or manage additional businesses profitably or successfully integrate any acquired businesses with our business.  Businesses that we acquire may have liabilities that we underestimate or do not discover during our pre-acquisition investigations.  Certain liabilities, even if we do not expressly assume them, may be imposed on us as the successor to the business.  Further, each acquisition may involve other special risks that could cause the acquired businesses to fail to meet our expectations.  For example:
 
 ·The acquired businesses may not achieve expected results;
 ·We may not be able to retain key personnel of the acquired businesses;
 ·We may incur substantial, unanticipated costs, delays or other operational or financial problems when we try to integrate businesses we acquire with our own;
 ·Our management’s attention may be diverted; or
 ·Our management may not be able to manage the combined entity effectively or to make acquisitions and grow our business internally at the same time.

The occurrence of one or more of these factors could have a material adverse effect on our business, financial condition, cash flows and results of operations.  In addition, we may incur debt or issue equity securities to pay for any future acquisitions or investments, which could dilute the ownership interest of our existing shareholders.
 
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IF WE ARE UNABLE TO SUCCESSFULLY PROTECT OUR INTELLECTUAL PROPERTY OR OBTAIN CERTAIN LICENSES, OUR COMPETITIVE POSITION MAY BE WEAKENED
 
Our performance and ability to compete are dependent in part on our technology.  We rely on a combination of patent, copyright, trademark and trade secret laws as well as confidentiality agreements and technical measures, to establish and protect our rights in the technology we develop. We cannot guarantee that any patents issued to us will afford meaningful protection for our technology.  Competitors may develop similar technologies which do not conflict with our patents.  Others may challenge our patents and, as a result, our patents could be narrowed or invalidated.
 
Our software is protected by common law copyright laws, as opposed to registration under copyright statutes.  Common law protection may be narrower than that which we could obtain under registered copyrights.  As a result, we may experience difficulty in enforcing our copyrights against certain third parties.  The source code for our proprietary software is protected as a trade secret.  As part of our confidentiality protection procedures, we generally enter into agreements with our employees and consultants and limit access to, and distribution of, our software, documentation and other proprietary

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information.  We cannot assure you that the steps we take will prevent misappropriation of our technology or that agreements entered into for that purpose will be enforceable. In order to protect our intellectual property, it may be necessary for us to sue one or more third parties.  While this has not been necessary to date, there can be no guarantee that we will not be required to do so in future to protect our rights. The laws of other countries may afford us little or no protection for our intellectual property.
 
We also rely on a variety of technology that we license from third parties, including our database and Internet server software, which is used to perform key functions.  These third-party technology licenses may not continue to be available to us on commercially reasonable terms, or at all. If we are unable to maintain these licenses or obtain upgrades to these licenses, we could be delayed in completing or prevented from offering some products or services.
 
OTHERS COULD CLAIM THAT WE INFRINGE ON THEIR INTELLECTUAL PROPERTY RIGHTS, WHICH MAY RESULT IN COSTLY AND TIME-CONSUMING LITIGATION
 
Our success will also depend partly on our ability to operate without infringing upon the proprietary rights of others, as well as our ability to prevent others from infringing on our proprietary rights.  We may be required at times to take legal action in order to protect our proprietary rights.  Also, from time to time, we may receive notice from third parties claiming that we infringe their patent or other proprietary rights. In the past, a certain third party claimed that certain of our technology infringed their intellectual property rights.    The claim with the particular third party has been resolved in a prior period through a licensing arrangement.  There can be no assurances that other third parties will not make similar claims in the future.
 
We believe that infringement claims will increase in the technology sector as competition intensifies.  Despite our best efforts, we may be sued for infringing on the patent or other proprietary rights of others.  Such litigation is costly, and even if we prevail, the cost of such litigation could harm us.  If we do not prevail or cannot fund a complete defense, in addition to any damages we might have to pay, we could be required to stop the infringing activity or obtain a license.  We cannot be certain that any required license would be available to us on acceptable terms, or at all.  If we fail to obtain a license, or if the terms of a license are burdensome to us, this could have a material adverse effect on our business, financial condition, cash flows and results of operations.
 
WE ARE SUBJECT TO RISKS ASSOCIATED WITH EXCHANGE RATE FLUCTUATIONS
 
The Company’s revenue from software licensing and related services and e-commerce enabling agreements is transacted in various currencies including the Canadian dollar and U.S. dollar.  As the majority of our revenues are realized in U.S. dollar and our expenses are transacted in Canadian dollar, the appreciation of the U.S. dollar against the Canadian dollar may have a favorable impact on our results.  The Company does not use derivative instruments to manage exposure to foreign exchange fluctuations. Fluctuations in the exchange rates of these currencies or the exchange rate of other currencies against the Canadian dollar could have a material adverse effect on our business, financial condition, cash flows and results of operations.
 
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OUR PREFERRED SHARES COULD PREVENT OR DELAY A TAKEOVER THAT SOME OR A MAJORITY OF SHAREHOLDERS CONSIDER FAVORABLE
 
Our Board of Directors, without any further vote of our shareholders, may issue preferred shares and determine the price, preferences, rights and restrictions of those shares.  The rights of the holders of common shares will be subject to, and may be adversely affected by, the rights of the holders of any series of preferred shares that may be issued in the future.  That means, for example, that we can issue preferred shares with more voting rights, higher dividend payments or more favorable rights upon distribution than those for our common shares.  If we issue certain types of preferred shares in the future, it may also be more difficult for a third party to acquire a majority of our outstanding voting shares and such issuance may, in certain circumstances, deter or delay mergers, tender offers or other possible transactions that may be favored by some or a majority of our shareholders.
 

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IT MAY BE DIFFICULT FOR YOU TO ENFORCE LEGAL CLAIMS AGAINST US OR OUR OFFICERS OR DIRECTORS
 
We are incorporated under the laws of the Province of Ontario, Canada.  A certain number of our directors and officers are residents of Canada and substantially all of our assets and the assets of such persons are located outside the United States.  As a result, it may be difficult for holders of common shares to effect service of legal process within the United States upon those directors and officers who are not residents of the United States.  It may also be difficult to realize in the United States upon judgments of courts of the United States without enforcing such judgments in our home jurisdiction or the jurisdiction of residence of the director or officer concerned.
 
ITEM 4                      - INFORMATIONINFORMATION ON THE COMPANY
 
A. HISTORY AND DEVELOPMENT OF THE COMPANY
 
Our name is Northcore Technologies Inc. (“Northcore, or the “Company”). The Company was formed pursuant to the Business Corporations Act (Ontario). The business began as Internet Liquidators Inc. (“IL Inc.”), a business corporation formed under the laws of Ontario, Canada, in September 1995 and after a series of corporate reorganizations, as described below, developed into the present Company.
 
In May 1996, Internet Liquidators International Inc. (“ILI Inc.”), also an Ontario company, acquired all of the shares of IL Inc. The two companies, IL Inc. and ILI Inc., were amalgamated on January 9, 1997.  By articles of amendment dated June 25 1998, the name of ILI Inc. was changed to Bid.Com International Inc.
 
On October 11, 2001, Bid.Com acquired substantially all of the shares of ADB Systemer ASA, a public limited liability company organized under the laws of the Kingdom of Norway. As part of the acquisition of ADB Systemer, Bid.Com completed a two for one share consolidation and changed its name to ADB Systems International Inc. (“ADB Inc.”) by articles of amendment dated October 11, 2001.
 
During 2002, ADB Inc. entered into a series of agreements with the Brick Warehouse Corporation (“The Brick”) whereby the parties agreed to cooperate in online retail operations that utilized the retail technology that
the Company had developed and operated under the name “Bid.Com International Inc.” in the online sale of consumer products to be supplied by The Brick. In connection with these transactions The Brick granted to the Company a secured loan and the Company completed a corporate reorganization by plan of arrangement, as described below.
 
           On August 20, 2002, a new Ontario company was formed called ADB Systems International Ltd. (“ADB Ltd.”), which was incorporated by certificate and Articles of Incorporation. Pursuant to a plan of arrangement approved by the shareholders of ADB Inc. on October 22, 2002 and by the Ontario Superior Court of Justice on October 24, 2002 (the “Arrangement”) the shareholders of ADB Inc. exchanged their shares of ADB Inc. for shares of ADB Ltd., as the Company was then known, on a one-for-one basis on October 31, 2002. As a result of the Arrangement, the business of ADB Inc., including all assets and liabilities of ADB Inc. (other than those related to retail activities, which remained with ADB Inc.), was transferred to the Company in the form of a return of capital. The name of ADB Inc. was subsequently changed to Bid.Com International Ltd. and on June 30, 2003, the Company exercised its option to transfer to The Brick all of the issued shares of Bid.Com International Ltd. (formerly ADB Inc.) in satisfaction of the outstanding principal amount and accrued interest on the loan then owing to The Brick.
 
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On June 30, 2006, in connection with the disposition of the Company’s Norwegian subsidiary ADB Systemer AS, the Company changed its name, by articles of amendment, to Northcore Technologies Inc. Effective July 18, 2006 the Company’s stock symbols were changed to NTI on the TSX and to NTLNF on the over-the-counter bulletin board (OTCBB).
 
The principal and registered office of the Company is located at 302 The East Mall, Suite 300 Toronto, Ontario, Canada, M9B 6C7 and our telephone number is (416) 640-0400.  Additional information on the Company can be found at www.northcore.com.www.northcore.com. The information contained on our web site is not deemed to be part of this Annual Report.

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MAJOR DEVELOPMENTS
 
Significant product and business developments over the last three fiscal years have been as follows:
 
FISCAL 2011
Northcore completed a number of customer and operational activities throughout the course of 2011. These activities were designed to accelerate revenue opportunities, solidify our financial position, and strengthen our abilities to work with our customers and partners.

OPERATIONAL ACTIVITIES
·Recruited a new CEO, Chairman and two Board of Directors members to assist with corporate realignment and growth initiatives;
·Completed the acquisition of the Discount This asset base, inclusive of unique Intellectual Property, to serve as the basis for a coordinated IP strategy;
·Opened a U.S. based office in Naples, Florida to facilitate greater access to American market opportunities;
·Completed major upgrades to production information technology infrastructure, including Server Architecture, Database Management Systems and Operating Environments;
·Launched a strategic initiative with Pellegrino and Associates to position Northcore to take advantage of high growth domains with its proprietary Working Capital Engine and Dutch Auction IP portfolio;
·Closed an equity private placement, generating net proceeds of $713,000 through the issuance of common shares and warrants;
·Secured $3,574,000 in proceeds through the exercise of warrants and options by current holders; and
·Continued to strengthen our balance sheet through the conversion of all remaining secured subordinated notes into equity and repayment of notes payable.
CUSTOMER ACTIVITIES
During 2011, Northcore focused on expanding the breadth of existing customer relationships and extending the product line in order to open up new opportunities.  Results of this strategy include:

·Successful deployment of Northcore’s e-tendering technology for the Irish Government Health Services Executive’s initial online acquisition pilot, resulting in a 30 percent savings on a €30 million acquisition;
·Launch of the Home Hardware Dealer-Owners Connect website at the bi-annual Home Hardware market showcase;
·Formation of a Social Commerce Group to focus on helping corporations leverage social media to accelerate buying and selling;
·Contractual renewal of multiple long-term enterprise clients;
·Execution of new contractual agreements with customers in multiple industry segments;
·Implementation of an “Intelligent Agent” data extraction initiative for a major strategic partner; and
·Awarded of Vendor of Record status by Ontario Government.

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JOINT VENTURE WITH GE COMMERCIAL FINANCE
Throughout 2011, Northcore continued to strengthen the relationship with GE Capital and engage on a number of initiatives through its joint venture entity, GE Asset Manager, LLC.

The technology underpinnings of the associated products of Asset Seller and Asset Tracker have evolved and seen considerable success in implementations for such important customers such as the NACCO Material Handling Group and the Bobcat Company.  The year also saw accelerated forays into the mobile device space with delivery of Asset Management "Apps". During this period cornerstone client remarketing portals such as GEasset.com, nfsassetseller.com and ToroUsed.com have also continued to gain in terms of customer base and item sell-through.

Both founding partners believe that the opportunities for the venture are significant and look forward to bringing compelling offerings to a growing client base in 2012.
FISCAL 2010
 
 Northcore completed a number of customer and operational activities throughout the course of 2010.  These activities were designed to accelerate revenue opportunities, solidify our financial position, and strengthen our abilities to work with our customers and partners.
 
Financing Activities

FINANCING ACTIVITIES
 ·Closed an equity transaction with GEM Global Yield Fund Limited, securing net cash proceeds of $300,000.  As a result of the transaction, Northcore issued 2,191,000 common shares for the first tranche draw and 6,000,000 warrants to finalize the availability of the committed $6,000,000 equity line of credit with GEM;
 ·Closed the first tranche of equity private placement on December 22, 2010, securing net proceeds of $625,000 through the issuance of common shares and warrants. The second tranche closed for net proceeds of $729,000$713,000 on February 14, 2011 as a subsequent event to the year; and
 ·Continued to strengthen our balance sheet through the conversion of $145,000 secured subordinated notes into equity combined with $143,000 of new equity through the exercise of the associated warrants.

Customer ActivitiesCUSTOMER ACTIVITIES
During 2010, Northcore focused on expanding the breadth of existing customer relationships and extending the product line in order to open up new opportunities. Results of this strategy include:

 ·Completed the development cycle and large scale roll out of a holistic remarketing platform to the Yale and Hyster dealer community, combining mobile computing with Asset Tracker and Asset Seller;
 ·Delivered and deployed a customized Asset Seller platform to Xstrata Corporation to effect the disposition of surplus mining assets;
 ·Initiated initial user interface design for the Group Purchasing platform subsequently named Discount This;
 ·Increased the volume of third party auction events in the light-duty construction equipment and utility vehicle categories, with successful value realization and improved sales cycle efficiency;
 ·Evidenced continued effectiveness in the remarketing of corporate aircraft and established Asset Seller as a leading platform for sales of high value asset categories by displaying showcased items in unprecedented rich detail;
 ·Awarded two supply arrangements with the Canadian Federal Government, qualifying Northcore for the provision of business technology services, one directly and one in partnership with Ottawa based Donna Cona Inc.;
 ·Completed the development of additional security modules required for Northcore’s core products to achieve US bank certification;
 ·Entered into a collaborative sales and marketing agreement with Revere Corporation where both parties can now serve their customers with a broader product offering; and
 ·Delivered a number of enhancements to a customized Asset Tracker application used by a Global Electronics Leasing corporation.

Joint Venture with
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JOINT VENTURE WITH GE Commercial FinanceCOMMERCIAL FINANCE
Throughout 2010, Northcore maintained a strong focus on GE Asset Manager, our joint venture with GE Commercial Finance.  The year saw significant enhancements made to the entire portfolio of Joint Venture products, with substantial new releases of Asset Seller and Asset Tracker delivered to clients.  In addition Northcore worked closely with GE internal teams to execute tasks required to achieve Bank Certification for internal and customer facing applications.

Remarketing portals such as GEasset.com and ToroUsed.com have also experience solid results in terms of viewership and sell-through.

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In specific, the joint venture has shown its efficacy in helping partners accelerate remarketing and redeployment of fixed assets in spite of a sub-optimal economic climate.  Both stakeholders remain committed to helping the venture achieve its full potential and a broader reach to GE customers.
 
FISCAL 2009
 
Northcore completed a number of customer and financing activities throughout the course of 2009.  These activities were designed to accelerate revenue opportunities, solidify our financial position, and strengthen our abilities to work with our customers and partners.

FINANCING ACTIVITIES
 ·Completed a series of debt to equity conversions resulting in full conversions of the original principal amounts of the Series I, J, K and M secured subordinated notes.  As a result of these conversions, the Company’s total liabilities have been reduced by 65 percent since the start of the year decreasing from $3,215,000 to $1,121,000 at the year end;
 ·Raised $1,320,000 of new equity through the exercise of the Series M warrants and additional proceeds of $112,000 through the exercise of compensation options; and
 ·Closed an equity private placement, securing net proceeds of $495,000 through the issuance of common shares and warrants;

CUSTOMER ACTIVITIES
During 2009, Northcore focused on expanding the breadth of existing customer relationships and extending the product line in order to open up new opportunities. Results of this strategy include:

 ·Initiated a Working Capital Engine™ marketing campaign under a new sales leader, as well as formed Southcore Technologies to market our technology products to new territories;
 ·Signed an agreement with NACCO Materials Handling Group (NMHG), to create a holistic remarketing platform to connect qualified buyers with used lift truck inventory from a North American network of authorized Hyster and Yale dealers;
 ·Completed an implementation of a next generation mobile application that would assist NMHG in streamlining their remote inspection and inventory process;
 ·Implemented a new media marketing platform supporting the sale of corporate aircraft.  The site delivers a new level of viewer immersion to the industry, previously only provided by world leading art galleries and museums;
 ·Developed a direct marketing product to support a major strategic partner in a high profile sales initiative;
 ·Delivered a prototype for Home Hardware Stores Limited, to provide an intranet for Home Hardware Dealers across Canada to more efficiently source assets for their business needs;
 ·Renewed a major application hosting contract with a key strategic partner and added an expanded scope of services; and
 ·Worked with a key strategic partner to deliver a new online marketing presence and supporting structures.

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JOINT VENTURE WITH GE COMMERCIAL FINANCE
Throughout 2009, Northcore continued to support GE Asset Manager, LLC, our joint venture with GE Commercial Finance.  The delivery of a cutting edge mobile application for a key GE partner, NMHG, illustrates this focus.

Working with our partners at GE, we have added new products to the portfolio. An example of this is the new media remarketing system currently being used to vend high-end corporate aircraft online. The joint venture has also supported numerous third party sales events for key GE clients, as well as managing the delivery of the associated eMarketing campaigns.

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In summary, the joint venture continued to show its increasing value to both partners in a year of challenging economic circumstances. We believe that this value equation will remain in evidence throughout the coming year.
 
FISCAL 2008
Northcore completed a number of customer and financing activities throughout the course of 2008.  These activities were designed to accelerate revenue opportunities, solidify our financial position, and strengthen our abilities to work with our customers and partners.
FINANCING ACTIVITIES
·Completed a series of private placements securing gross proceeds of $1,803,000 through the issuances of Series L, M and N secured subordinated notes; and
·Entered into an agreement with the remaining Series G debt holders to repay the accrued interest of $113,000 and the principal of $240,000 over a two year term at an interest rate of 12 percent, in blended interest and principal quarterly payments of $40,000,

CUSTOMER ACTIVITIES
During 2008 Northcore focused on expanding the breadth of existing customer relationships and extending the product line in order to open up new opportunities. Results of this strategy include:

·Significant enhancements to the core Asset Tracking system, performed in partnership with Kraft Foods, enabling anticipatory asset sourcing;
·Creation of the first generation of a mobile Asset Tracking platform, extending product reach into a customer base that requires a portable, rugged-ized, execution environment; and
·Completed the delivery of a large scale mission critical application to a Fortune 500 company that was put into global use.

COMPANY’S JOINT VENTURE WITH GE COMMERCIAL FINANCE
Throughout 2008, Northcore continued to support GE Asset Manager, LLC, our joint venture with GE Commercial Finance. The provision of Asset Disposition services to a number of key clients, such as Western Express, Kitty Hawk, and the Hyster and Yale corporations, are examples of this focus.

Working closely with GE, we have also augmented the core GEAM product suite, with enhancements to Asset Appraiser and tighter integration of the Asset Tracking technology to the Asset Sales platform. We expect this to have broad customer appeal.

We also supported a significant international expansion in the use of Asset Tracker by Kraft Foods.
COMPANY’S JOINT VENTURE WITHGE COMMERCIAL FINANCE
 
On December 31, 2003 ADB Systems USA, Inc. (“ADB USA”), athe Company, through its wholly owned subsidiary, of the Company, entered into an Amended and Restated Operating Agreement (the “Operating Agreement”) with General Electric Capital Corporation through its business division GE Commercial Finance. This agreement was entered into in connection with the establishment of GE Asset Manager, LLC, a joint business venture in which both GE Commercial Finance and ADB USANorthcore hold a 50 percent interest. Pursuant to this businessThe joint venture GE Commercial Finance and ADB USA also entered into the following agreements that are included as exhibits to the Operating Agreement:  ADB License Agreement, ADB Services Agreement, GE License Agreement and GE Service Agreement. GE Asset Manager, LLC, which carries on business under the name GE Commercial Finance Asset Manager (“GE Asset Manager”, “GEAM”), is an integrated, web-based business enabling mid- and large-size organizations to reduce operating costs by simplifying and consolidating their asset management programs. GEAM features all-in-one capabilities designed for sourcing of new equipment, tracking and reallocation of existing assets, automated appraisal management and disposition of surplus equipment.
 
PRINCIPAL CAPITAL EXPENDITURES AND DIVESTITURES
 
For a description of principal capital expenditures and divestitures, see ITEM 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS MANAGEMENT’S DISCUSSION AND ANALYSIS OF

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS  As of February 28, 201129, 2012 we do not have any significant current capital divestitures or any current capital expenditures.
 
B. BUSINESS OVERVIEW
 
The CompanyNorthcore Technologies Inc. (“Northcore” or the “Company”) provides a Working Capital Engine™enterprise level software products and services that helps organizations source,enable its customer to purchase, manage appraise and sell theirdispose of capital equipment.  We refer to our productUtilizing award-winning, multi-patented technology, as well as powerful, holistic Social Commerce tools, Northcore’s
solutions support customers throughout the entire asset lifecycle.  Our integrated software solutions and support services suite as asset lifecycle management solutions.  Our solutions can reduce sourcingare designed for organizations in the financial services, manufacturing, oil and procurement costs, improve trackinggas, mining, and monitoring of asset performance and reduce operational downtime.government sectors to:
Designed to help our customers get full value from their capital assets, we believe the Company’s integrated asset management solutions:

 ·Streamline sourcing/the sourcing and procurement activitiesof critical assets, while reducing purchasing costs;
 ·Schedule preventativeTrack the location of assets to support improved asset utilization and corrective maintenance activities, eliminating unnecessary operational downtimes and reducing maintenance costs;redeployment of idle equipment;
 ·Manage inventorythe appraisal of materialsused equipment more effectively, resulting in reduced purchase costs, improved access to supplies, and easier trackinga better understanding of assets regardless of their location;fair market values; and
 ·Generate higher yield forAccelerate the sale of surplus assets that are disposed or sold on-line.while generating higher yields.

Northcore owns a 50 percent interest inof GE Asset Manager, LLC (also referred to as “GE Asset Manager”), a joint business venture launched with GE Capital Corporation, through its business division GE Commercial Finance, which operates underCapital Solutions.  Together, the name GE Commercial Finance Asset Manager  (see Part I - Item 4.A - “Joint Venturecompanies work with GE Commercial Finance”)leading organizations around the world to help them liberate more capital value from their assets.

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Northcore’s shares trade on both the Toronto Stock Exchange (TSX: NTI) and the OTC Bulletin Board (OTCBB: NTLNF).

GEAM offers a suite of integrated, web-based solutions that are designed to help organizations gain greater control of their capital assets and implement new process efficiencies to their operational activities which we believe enables our customers to:
 ·Automate sourcing and tendering processes;
 ·Track and re-deploy assets more effectively;
 ·Automate equipment appraisals; and
 ·Efficiently market and sell surplus equipment.

We believe however, that the current economic turmoil bodes well for Northcore. In times where access to new capital is reduced, or rendered more difficult, companies are motivated to “stretch” existing capital investments by redeploying idle and surplus assets back into productive use. In addition, assets that are ultimately unneeded represent a “harvest” opportunity, if they can be liquidated efficiently. The product suite offered by Northcore and by extension our joint venture, (GEGE Asset Manager, LLC)LLC, provides an efficient, cost effective solution to help organizations achieve these goals.
 
INDUSTRY BACKGROUND AND OVERVIEW
 
Asset management applications have existed for more than thirty years, initially through computerized maintenance management systems (CMMS), and more recently including more comprehensive and robust enterprise asset management (EAM) and enterprise resource planning (ERP) solutions.  These early systems automated daily management of assets, while more recent ERP solutions consolidated basic asset information with financial information at the corporate level. Asset Management applications, as provided by Northcore, encompass elements of both approaches, and are increasingly delivered via web-based or hosted systems.
 
Current asset management systems provide a number of capabilities including maintenance scheduling, materials management, electronic procurement, and asset tracking. In essence, asset management activities have evolved to integrate all aspects of an asset’s lifecycle.
 
There are a number of industry trends driving the demand for asset management capabilities, including the need to:
 
 ·Improve the utilization of assets;
 ·Comply with industry standards and requirement such as, Sarbanes-Oxley financial requirements;

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 ·Reduce operating expenses and improve bottom-line performance; and
 ·Introduce new operational efficiencies.
 
PRODUCTS AND SERVICES
 
The Company offers solutions to manage all aspects of the asset lifecycle – sourcing/procurement, maintenance, materials management and disposition.  Below is a detailed description of our offerings:
 
Dyn@mic Buyer (TM)
 
An on-line sourcing solution, Dyn@mic Buyer automates tendering activities, and can be used to improve the decision-making process involved in the sourcing of goods by providing automated analysis and selection among competing supplier bids, based on a variety of pre-determined factors.
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Key features include:
 
 ·The ability for buyers to create tenders using automated tools that accelerate the purchasing process and reduce procurement costs.
 ·Capabilities for buyers to post and distribute their tenders on-line to qualified suppliers.
 ·The ability for buyers to assign values to criteria involved in the purchase decision, such as price, product availability, post-sales support and certification standards.  Buyers then weigh suppliers’ responses to tender questions for evaluation.
 ·Functionality that allows for the posting of detailed technical information, question and answer forums, and automatic e-mail notification of amended or new buyer-posted documents.
 ·Capabilities to allow for the use of sealed bid-sourcing formats enabling users to post their product or service requirements to selected vendors.  The sealed bid system differs from the request for quotation in that the vendors only have one opportunity to supply a bid.  Only after the close of the auction is the user able to view the vendor bids.
 
Dyn@mic Buyer is delivered to our customers via a hosted model. Fees for Dyn@mic Buyer are determined on an annual basis, depending on the number of sourcing events identified by customers. Service fees are charged separately for implementation, systems integration, training and other consulting activities. Dyn@mic Buyer can be bundled with our procurement solutions or used separately depending on customer requirements.
 
Dyn@mic Seller (TM)
 
An on-line sales solution designed to help our customers with the disposition of surplus assets and equipment.  Dyn@mic Seller integrates multiple pricing methods, such as fixed priced, top bid (auction), Dutch (declining price) and hybrids, through private-labeled websites. Dyn@mic Seller is delivered through a hosted model.
 
Key capabilities of the product include:
 
·Traditional rising price auctions, where the highest bids win the items being sold. The rising price auction allows participants to competitively bid on available products by incrementally adjusting their bid amounts.  Our user interface allows users to easily identify current leading bidders, minimum new bids and initial bid pricing. Participants are informed of their bid status, and advised whether they have won, been outbid, approved or declined via electronic mail.
·      Traditional rising price auctions, where the highest bids win the items being sold. The rising price auction allows participants to competitively bid on available products by incrementally adjusting their bid amounts.  Our user interface allows users to easily identify current leading bidders, minimum new bids and initial bid pricing. Participants are informed of their bid status, and advised whether they have won, been outbid, approved or declined via electronic mail.
·      A patented Dutch (declining) auction format, in which a starting price is set and a limited time period is allocated for a fixed quantity of the product to be sold.  As time advances, the price drops in small increments until the asset is sold.  The declining bid auction allows participants to bid in a real-time format utilizing on-screen data which provides the time and quantity remaining as well as the falling price of the items for sale.
·      Hybrid auction formats that blend multiple pricing formats to meet a customer’s particular needs.
·      Fixed price sales where assets are sold in a catalogue or directory format.  The purchaser cannot bid on the price, but merely elects whether or not to purchase the good or service.
 
·A patented Dutch (declining) auction format, in which a starting price is set and a limited time period is allocated for a fixed quantity of the product to be sold.  As time advances, the price drops in small increments until the asset is sold.  The declining bid auction allows participants to bid in a real-time format utilizing on-screen data which provides the time and quantity remaining as well as the falling price of the items for sale.
·Hybrid auction formats that blend multiple pricing formats to meet a customer’s particular needs.

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·Fixed price sales where assets are sold in a catalogue or directory format.  The purchaser cannot bid on the price, but merely elects whether or not to purchase the good or service.
Our customers pay monthly hosting fees for use of Dyn@mic Seller and typically also enter into a revenue sharing arrangement with us.  Service fees for implementation, systems integration, training and other consulting activities are charged separately.
 
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RELATED SERVICES
 
In connection with our software offerings, we provide the following services to our customers:
 
CONSULTING
 
A significant number of our customers request our advice regarding their business and technical processes, often in conjunction with a scoping exercise conducted both before and after the execution of a contract.  This advice can relate to development or optimization of assorted business processes, such as sourcing or procurement activities, assisting in the development of technical specifications, and recommendations regarding internal workflow activities.
 
CUSTOMIZATION AND IMPLEMENTATION
 
Based generally upon the up-front scoping activities, we are able to customize our solutions as required to meet the customer's particular needs.  This process can vary in length depending on the degree of customization, the resources applied by the customer and the customer's business requirements.  We work closely with our customers to ensure that new features and functionality meet their expectations.  We also provide the professional services work required for the implementation of our customer solutions, including loading of data, identification of business processes, and integration to other systems applications.
 
APPLICATION DEVELOPMENT
 
           A growing number of our customers have engaged us to develop web-based applications that support their unique asset management requirements. Typically, these application development projects become the proprietary technology of our customers and are not resold by us. We charge customers based on hourly service rates or through a fixed price format.
 
TRAINING
 
Upon completion of implementation (and often during implementation), we train customer personnel to utilize our solutions.   Training can be conducted in one-on-one or group situations. We also conduct “train the trainer” sessions.
 
MAINTENANCE AND SUPPORT

We provide regular software upgrades and ongoing support to our customers. Northcore provides these services for a yearly maintenance fee of 18 percent of the license fee for client/server environment or as part of its monthly hosting fees.fees.

HOSTING

We also provide technology-hosting services to our customers. Through these services, customers gain access to Northcore's applications via the Internet through dedicated, secure websites.  Our hosting services enable customers to accelerate the deployment of technology initiatives while limiting investments in systems configuration and new hardware infrastructure.

GE ASSET MANAGER, LLC (GEAM)

GEAM is a joint venture betweenIS A JOINT VENTURE BETWEEN GE Commercial Finance and Northcore Technologies Inc. that combines GE’s equipment financing and asset management expertise together with our experience in providing mission critical technology solutions for asset lifecycle management.COMMERCIAL FINANCE AND NORTHCORE TECHNOLOGIES INC. THAT COMBINES GE’S EQUIPMENT FINANCING AND ASSET MANAGEMENT EXPERTISE TOGETHER WITH OUR EXPERIENCE IN PROVIDING MISSION CRITICAL TECHNOLOGY SOLUTIONS FOR ASSET LIFECYCLE MANAGEMENT.

 
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With organizations needing to generate improved bottom-line results and comply with new financial regulatory requirements, GEAM has introduced a new suite of integrated, web-based solutions that are designed to help organizations gain greater control of their capital assets and implement new process efficiencies to their operational activities.

Our industry-proven solutions enable our customers to:

 ·Automate sourcing and tendering processes.
 ·Track and re-deploy assets more effectively;
 ·Automate equipment appraisals; and
 ·Efficiently market and sell surplus equipment.

The four key components to Asset Manager’s offerings are as follows:follows:

Asset Buyer

Asset Buyer is a web-based solution designed for automating sourcing activities and improving purchasing decisions.  Using Asset Buyer, purchasers can determine the factors that are the most important to their procurement decisions and identify suppliers that deliver the greatest value – from the lowest price to the ability to match exact specification requirements.

Asset Buyer also streamlines the procurement process, making it easier to create and distribute tenders, select vendors and negotiate with suppliers.

With Asset Buyer, organizations can:
 ·Generate cost savings on sourcing activities;
 ·Reduce purchasing cycle times;
 ·Take advantage of multiple sourcing formats including request for proposals, reverse auction, and sealed bid; and
 ·Rank suppliers based on their ability to match buying criteria improve relations with suppliers through on-line collaborations.

Asset Tracker

 Designed to allow organizations to more effectively utilize their assets, Asset Tracker is a web-based solution for keeping track of the location, details and status of capital equipment – regardless of where the equipment is being deployed.

Using a dedicated tracking site that is password protected, Asset Tracker provides users the ability to search and locate capital assets throughout their organization. Users can search for equipment in a number of ways.  Assets can be searched by business unit, function, or by specific piece of equipment category.

Once an asset is located, users can determine its status and take appropriate action.  Idle or under-utilized assets, for example, can be re-deployed, helping to increase their value to the organization and reducing capital spending on new equipment.

Assets no longer required or deemed surplus can be earmarked for disposition through traditional or on-line sales methods, such as Asset Seller (described below).

With Asset Tracker, users can:

 ·Search and request for capital equipment within their organization, across multiple locations or facilities;
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 ·Review asset details, such as equipment description, image, financial information, and contact information;
 ·Add new asset details by uploading data from spreadsheet applications;

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 ·Extract asset details and generate asset management reports;
 ·Instantly determine the status of capital equipment;
 ·Transfer and re-deploy idle assets; and
 ·Dispose of unnecessary or surplus equipment.

Asset Appraiser

 Asset Appraiser is a web-based solution that allows organizations to more effectively manage the capital equipment appraisal process. With Asset Appraiser users can create an appraisal scope, confirm appraisal data, distribute documents and data collection tools, compile appraisal results and access stored appraisals on-line in a protected environment.

Asset Appraiser allows users to:

 ·Automate and accelerate the appraisal process using web-based tools;
 ·Gain instant access to ongoing project details from anywhere in the world;
 ·Store asset data in a secure repository for future reference, retrieval and analysis;
 ·Access appraisals in a 24 x 7 environment;
 ·Store and review appraisals in a secure environment;
 ·Download spreadsheet templates into reports;
 ·Add attachments, such as image, text or movie files, to reports; and
 ·Assist with compliance with the Uniform Standards of Professional Appraisal Practice.

Asset Seller

Asset Seller facilitates instant and global access to a buying community by presenting surplus equipment or inventory on geasset.com, GE's equipment re-marketing website. Asset Seller is a proven take-to-market solution that will connect a company's equipment to a global community of qualified organizational buyers using multiple sales platforms, all developed to help maximize asset recovery value and improve cycle time.
Asset Seller brings together multiple sales platforms into one integrated on-line environment, providing flexibility, while maximizing the yield for your surplus equipment.
 
Asset Seller's direct sale platform features equipment showcases that are designed to promote private treaty sales. Other sales platforms available through Asset Seller include ranked sealed bid and top bid sale events that enable you to market equipment in an auction-like environment.
 
Utilizing GE's patent pending ranked sealed bid method, Asset Seller encourages multiple bids and retains buyer anonymity, creating competitive sales environments that generate a higher recovery for asset investment.
 
Asset Seller also enables organizations to feature equipment specifications, photos, videos and contact information, and allows them to coordinate off-line sales activities such as equipment inspections. Current customers of Asset Seller, through our joint venture, include The Toro Company.
 
 
THIRD PARTY BUSINESS RELATIONSHIPS
 
Designed to extend the value of the solutions we deliver to our customers, Northcore has fostered relationships with a number of leading technology and professional service organizations. These relationships
allow Northcore to develop world-class offerings that leverage the leading-edge technologies, proven methodologies and subject matter expertise of our business partners.

Northcore’s existing business relationships include:


 
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GE COMMERCIAL FINANCE

 Backed by more than 65 years of operating experience, a strong credit rating, and the vast resources of its parent, General Electric Company, GE Capital offers a wide range of value-added financial products and services through a network of 28 specialized businesses in five core niches: Equipment Management, Customer Services, Specialized Financing, Mid-Market Financing and Specialty Insurance.

 
DONNA CONA
 
Donna Cona is Canada's largest Aboriginal Information and Communications Technology company. The company was incorporated in 1996, and has successfully been providing information technology and management consulting services to public sector organizations.
 
MOTOROLA
 
A global communicationscommunication leader, powered by, and driving, seamless mobility. Motorola is revolutionizing broadband, embedded systems and wireless networks - bringing cutting-edge technologies into your everyday life, with style.
ADB SYSTEMER AS
Based in Stavanger, Norway ADB Systemer AS provides enterprise asset management technology for oil and gas companies and public sector organizations. Upon the share sale of ADB Systemer AS, effective June 30, 2006, the Company entered into a value added reseller agreement with ADB Systemer AS to continue to bring WorkMate and ProcureMate to market.
 
GEM GROUP

Global Emerging Markets Group, www.gemgroup.ch was founded in 1991. GEM is a USD 3.4 billion Swiss-based investment group having completed 285 transactions in 60 countries. The firm is an alternative investment group that manages a diverse set of investment vehicles across the world. GEM’s funds include: CITIC/GEM Fund; VC Bank/GEM Mena Fund; Kinderhook; GEM Global Yield Fund; GEM India and Banco Pine/GEM Funds.
 
BUSINESS CYCLES

As many of the customers of the Company and GEAM are large, multinational organizations or quasi-governmental entities, we may experience increasingly longer sales and collection cycles. Additional information on business cycle risks are set out in Item 3.D. of this Annual Report under the heading Risk Factors.
 
For additional information regarding business cycles, see Part I - Item 5 under the heading “OPERATING AND FINANCIAL REVIEW AND PROSPECTS – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS”.
 
STRATEGY
 
Our business strategy is to expand our customer base, particularly in the financial services, manufacturing, public, and oil and gas sectors, through superior software functionality and through the industry expertise of our employees.  In particular, our strategy is comprised of the following key components:
 
EXPAND JOINT VENTURE WITH GE AND INCREASE OUR CUSTOMER BASE
 
Since the launch of GE Asset Manager, we have focused our efforts on increasing the number of joint venture customers and enhancing our portfolio of asset management technology. This focus will be a cornerstone of our efforts in 2011.2012.

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STRENGTHEN OUR POSITION AS AN ASSET MANAGEMENT SOLUTION PROVIDER AND IMPROVE OUR VISIBILITY AMONG TARGET SECTOR
 
While we have expanded our customer base and increased the number of users of our technology, Northcore is committed to solidifying our position as a provider of asset management solutions particularly among our target markets.
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MAINTAIN AND ENHANCE OUR TECHNOLOGY
 
Based on the relative pricing and functionality of our products as compared with those of our competitors, we consider our proprietary software offerings to be competitive, however it is critical that we continue to maintain and enhance our technology.
 
 SEEKING ACQUISITIONS AND STRATEGIC INVESTMENTS
 
We plan to expand by seeking technologies, products, and services that complement our existing business.  If appropriate opportunities are available, we may acquire businesses, technologies or products or enter into strategic relationships that may further diversify revenue sources and product offerings, expand our customer base or enhance our technology platform.

CUSTOMERS

We provide our solutions to customers in a variety of industries, including: financial services, manufacturing, government and oil and gas.
 
The revenue structures and particular services provided vary depending upon the needs of the customer and the solution concerned.  For licensed offerings we generally collect a license fee based on number of users, service fees for implementation and training, and support and maintenance fees that are collected on a recurring annual basis. For hosted offerings, we generally collect an up-front implementation fee, monthly hosting fee, and a share of revenue or transaction volumes.
 
 
The following is a representative list of some of the customers for whom we have implemented or are implementing our solutions:
 
CustomerSolution(s)Industry SegmentGeographic Location
GE Capital SolutionsAsset SellerFinancial ServicesUS
Global Electronics Services-GE Capital SolutionsAsset TrackerFinancial ServicesUS
GE InfrastructureAsset TrackerManufacturingUS
NACCO Materials Handling Group (NMHG)Asset Seller & Asset TrackerManufacturingUS
The Toro CompanyAsset TrackerManufacturingUS
Kraft Foods Global, Inc.Asset TrackerManufacturingUS

SALES AND MARKETING

We market our solutions primarily through our direct sales force. Our sales organization is regional with personnel located in our principal offices in Toronto, Canada.
 
Our marketing efforts are focused on targeted marketing campaigns, rather than broad-based "awareness" campaigns. Potential customers are identified through direct contact, responses to requests for information, attendance at trade shows and through industry contacts.
 
The GE sales force takes the lead in the sales and marketing efforts of the Asset Manager joint venture.
 

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We use reference customers to assist us in our marketing efforts, both through direct contact with potential customers and through site branding and case studies.  We also rely on our co-marketing partners to assist in our marketing efforts.
 
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TECHNOLOGY PLATFORM  

Northcore has devoted significant resources to developing its proprietary software technology. The technology platform is constructed using distributed software technologies which allow for rapid development and deployment of new software technology in order to take advantage of emerging business opportunities.
 
Our company's core technology platform is based on Microsoft applications, including the Windows NT operating system and a SQL server relational database, all residing on scaleable hardware. The software is constructed using an advanced proprietary XML framework and resides on an N-tier architecture. The support of open systems allows integration with a large variety of existing commercial, proprietary and legacy applications.  Other applications, which are also operational in a Microsoft NT environment, have been developed using Power Builder and are dependent on an Oracle relational database.
 
CUSTOMER SERVICE AND TECHNOLOGY

Based on the relative pricing and functionality of our products as compared with those of competitors, we believe that our proprietary software provides a competitive advantage, and that our future success depends, in part, on our ability to continue developing and enhancing that software.  Therefore, we have focused our customer service and technology efforts on the continued development of our proprietary software offerings.
 
Our ongoing software development and technology efforts are aimed at the continued “productization” of specific elements of our software, enhancing the features and functionality of our existing software components, the development of new software components, and the integration of superior third party technology into our environment.  Productization involves the development of reusable applications to reduce programming time and costs for customer implementations.
 
Our software development and technology expenditures were approximately $734,000, $738,000,$726,000, and $689,000$734,000, for the year ended December 31, 2010, 20092011 and 2008,2010, respectively, including salaries and related expenses of our personnel engaged in research and development.
 
Our software development and technology activities in 20102011 included the ongoing development of new applications framework implemented in Microsoft.Net. The new framework will be used as the foundation of all future Web based products. There was also a substantial amount of time devoted to the extension of our integration tool set, which allows us to connect our core product suite to pre-existing customer owned third party applications.
 
CUSTOMER CONCENTRATION

The majority of our revenue is generated by a small number of customers as discussed above in Item 3-D Risk Factors - WE DEPEND HEAVILY ON A LIMITED NUMBER OF CUSTOMERS, AND IF WE LOSE ANY OF THEM OR THEY REDUCE THEIR BUSINESS WITH US, WE WOULD LOSE A SUBSTANTIAL PORTION OF OUR REVENUES. See also Item 5-D under the heading Credit Risk.

INTELLECTUAL PROPERTY
 
We rely on a combination of patent, copyright, trademark and trade secret laws, as well as confidentiality agreements and technical measures, to establish and protect our proprietary rights.
 
In March 1999 and July 2001, we received patents from the U.S. Patent and Trademark Office covering the process whereby we conduct Dutch auctions over electronic distribution channels. We have patent applications pending in Canada covering the same technology.  We also continue to explore other patent opportunities, and may have other applications pending from time to time. We do not believe, however, that our ability to obtain patents is material to our success or results.
 

 
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Our proprietary software is subject to common law copyright protection, but we do not have, and do not intend to pursue, any registered copyrights.  Common law protection may be narrower than that which we could obtain under registered copyrights.  As a result, we may experience difficulty in enforcing our copyrights against certain third party infringements.  The source code for our proprietary software is protected as a trade secret.
Our major trademarks or tradenames include: Northcore™, DYN@MIC SELLER™, DYN@MIC BUYER™, WORKING CAPITAL ENGINE™ and POWERED BY Northcore™. We also claim rights in other unregistered trademarks.
 
Our competitive position is also dependent upon our unpatented trade secrets.  In an effort to protect our trade secrets, and as part of our confidentiality procedures, we generally enter into confidentiality and non-disclosure agreements with our employees and consultants and generally limit access to and distribution of our software, documentation and other proprietary information.  Additionally, we limit physical access to our premises, software and hardware and employ security measures to protect against damage or theft.

In 2009, the Company entered into a technology licensing agreement with a Fortune 500 company that provides Northcore with access to a portfolio of intellectually property patents over a six-year period for a minimum fee of US $260,000 over the term of the agreement.

COMPETITION

The market for each solution comprising our asset lifecycle management suite is intensely competitive.  Many of the companies we compete with have much greater financial, technical, research and development resources than we do.
To remain and become more competitive, we will need to make continued investments in product development and improve our market visibility and financial situation.

Although we offer a broad range of asset lifecycle management solutions, we face significant competition in each of the component product areas from the following companies:
 
 ·Sourcing – Ariba, Inc., Emptoris, Inc., Moai, and SAP AG;
 ·Procurement –Ariba, Inc., IBM, and broader ERP solution providers such as Oracle and SAP AG;
 ·Asset Management– Indus International Inc., Infor, IBM, Mincom Ltd., and broader ERP solution providers such as Oracle and SAP AG; and
 ·Sales solutions – eBay Inc.
 
In addition, many organizations use in-house developers to develop solutions for certain elements of the asset lifecycle.
 
 
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C. ORGANIZATIONAL STRUCTURE
 
 
The Company has the following organizational structure, which includes the subsidiaries as set out below:
 
 

CORPORATE ORGANIZATIONAL STRUCTURE
 
AS OF FEBRUARY 28, 201129, 2012
 
GraphicGraphic
 
 
D. PROPERTY, PLANT AND EQUIPMENT
 
 
The table below lists the location of our facilities, which is held by us pursuant to a lease agreement, and summarizes certain information about the location.
 
LocationUse
Square Feet
(Approximate)
Term of Lease
302 The East Mall, Suite 300 Toronto, OntarioExecutive, Administrative, EngineeringSoftware development, Sales and Marketing5,435Expires Oct. 2014
 
We believe that we have adequate space for our current needs.  As we expand, we expect that suitable additional space will be available on commercially reasonable terms.  We do not own any real estate nor do we currently own or lease warehouse space.
 
ITEM 4A - UNRESOLVED STAFF COMMENTS
 
Not Applicable.
 
ITEM 5 -OPERATING5- OPERATING AND FINANCIAL REVIEW AND PROSPECTS MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 18.
 
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH "ITEM 3.A-SELECTED FINANCIAL DATA" AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES INCLUDED ELSEWHERE IN THIS ANNUAL REPORT.  IN ADDITION TO HISTORICAL INFORMATION, THE FOLLOWING DISCUSSION CONTAINS CERTAIN

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ITEM 19.FORWARD-LOOKING STATEMENTS THAT INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF OUR PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS.  SEE "FORWARD-LOOKING STATEMENTS".
 
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Overview
 
The Company provides a Working Capital Engine™ that helps organizations source, manage, appraise and sell their capital equipment. We refer to our product and services suite as asset lifecycle management solutions.  Our solutions can reduce sourcing and procurement costs, improve tracking and monitoring of asset performance and reduce operational downtime.
 
The Company operates in a single reportable operating segment, that is, the design and delivery of software solutions for use by its customers. The single reportable operating segment derives its revenues from the sale of software licenses and related services.

Our company is headquartered in Toronto (Canada).

Our shares trade on both the Toronto Stock Exchange (TSX: NTI) and the OTC Bulletin Board (OTCBB: NTLNF).

SELECTED ANNUAL INFORMATION
Year ended December 31, 2010  2009  2008 20112010
 (in thousands, except loss per share)      (IFRS)
Revenues $636  $759  $741 785582
Income from GE Asset Manager, LLC6943
Operating expenses:             
General and administrative  1,451   1,269   1,485 1,6701,440
Customer service and technology  734   738   689 726734
Sales and marketing  188   181   117 260188
Stock-based compensation  358   183   43 1,873517
Depreciation  22   29   33 
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Total operating expenses  2,753   2,400   2,367 4,5612,901
Loss from operations before the under-noted  (2,117)  (1,641)  (1,626)
Interest expense:            
Loss from operations(3,707)(2,276)
Finance cost: 
Cash interest expense  154   260   335 103154
Accretion of secured subordinated notes  160   508   394 124115
Total interest expense  314   768   729 
Other expenses (income):            
Total finance costs
227
269
Other expenses 
Gain on settlement of debt  (57)  -   - -(57)
Provision for impaired investment  544   -   - -544
Total other expenses  487   -   - -487
LOSS AND COMPREHENSIVE LOSS FOR THE YEAR $(2,918) $(2,409) $(2,355)$    (3,934)$    (3,032)
LOSS PER SHARE, BASIC AND DILUTED $(0.018) $(0.017) $(0.022)$    (0.020)$    (0.019)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED (000’s)  162,899   140,434   108,,861 196,180162,899

 
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RESULTSRECONCILIATION OF OPERATIONSLOSS TO OPERATIONAL EBITDA(1)

Year ended December 31, 20112010
 (in thousands of Canadian dollars)
Loss for the year, as per above $    (3,934)$    (3,032)
Reconciling items:   
Stock-based compensation 1,873517
Depreciation 3222
Finance costs:   
     Cash interest expense 103154
     Accretion of secured subordinated notes 124115
Other Items:   
     Professional fees (2)
 235-
     Gain on settlement of debt -(57)
     Provision for impaired investment -544
OPERATIONAL EBITDA $    (1,567)$    (1,737)

(1)Operational EBITDA is defined as the loss before interest, taxes, depreciation, stock-based compensation and other non-recurring expenses.  The Company considers Operational EBITDA to be a meaningful performance measure as it provides an approximation of operating cash flows.  Operational EBITDA should not be considered as a substitute or alternative for operating loss or loss for the year, in each case determined in accordance with IFRS.

(2)Non-recurring professional fees relates to consulting fees paid in connection with the recruitment of new senior management and Board members, as well as engaging an Intellectual Property firm to help examine the applicability of the Company’s core technology.

A. OPERATING RESULTS

FINANCIAL PERFORMANCE

Comparison of Years Ended December 31, 20102011 and December 31, 20092010

Loss:Overview:  The Operational EBITDA loss was $1,567,000 for 2011 as compared to $1,737,000 for 2010, an improvement in the Operational EBITDA loss of $170,000 or 10 percent.   The improvement in the Operational EBITDA loss was primarily due an increase in revenues, partially offset by an increase in sales and marketing expenses.

Our loss for the year ended December 31, 20102011 was $2,918,000,$3,934,000, an increase of $509,000$902,000 or 2130 percent from the loss of $2,409,000$3,032,000 reported for the year ended December 31, 2009.2010.   The increase in loss was attributable to the provision for impaired investment, increase in operating expenses, and decreasepartially offset by the increase in revenues partially offsetand the decrease in interest expense and a gain on settlement of debt.  Excluding these non-recurring non-cashexpense.   The increase in operating expenses the losswas largely due to stock-based compensation, which increased by $22,000 or one percent from 2009.

Operational EBITDA is defined as the loss before interest, taxes, depreciation, stock-based compensation and other non-recurring expenses.  The Company considers Operational EBITDA to be a meaningful performance measure as it provides an approximation of operating cash flows.  Operational EBITDA should not be considered as a substitute or alternative for operating loss or loss for the year, in each case determined in accordance with GAAP.

The Operational EBITDA loss was $1,737,000 for 2010$1,356,000 as compared to $1,669,000 for 2009, an increase in the EBITDA loss of $68,000 or four percent. The increase in Operational EBITDA loss was due to a decrease in revenues, largely offset by reduction in operating costs.prior year.

Revenues:  Revenues are comprised of services (application development activities, software implementation and license fees, training and consulting, product maintenance and customer support), and application hosting and royalty fees.

Revenues decreasedincreased by $203,000 or 35 percent to $636,000$785,000 for the year ended December 31, 2010 from $759,0002011, as compared to $582,000 for the year ended December 31, 2009, representing a decreasesame period of $123,000 or 16 percent.2010.  The decreasegrowth in revenues was attributed to the higher social
commerce services revenue was the main reasonrevenues in connection with group purchase platform and applications implementation for the decline in revenues.our strategic partners.

General and Administrative:  General and administrative expenses include, primarily: all salaries and related expenses (including benefits and payroll taxes) other than technology staff compensation (which is included in customer service and technology expenses), and sales and marketing staff compensation (which is included in sales and marketing expenses), occupancy costs, foreign exchange gains or losses, professional fees, insurance, investor relations, regulatory filing fees, and travel and related costs.

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General and administrative expenses increased by $182,000$230,000 or 1416 percent, to $1,451,000$1,670,000 for the year ended December 31, 2010,2011, as compared to $1,269,000$1,440,000 for the year ended December 31, 2009.2010.  The increase was attributed to higher non-cash, non-recurring professional fees in expenses overconnection with the same periodrecruitment of last yearnew senior management and Board members, as well as engaging an intellectual property firm to help examine the applicability of the Company’s core technology and intellectual property portfolio in selected business domains.  The increase was mainly due to an increase in financing fees, partially offset by savings in professional feesthe areas of investor relations and bad debt expense.  In addition, prior year’s expenses included a significant reduction in licensing fees as a result of settlement of past debts for $240,000 less than the amounts recorded.financing fees.

Customer Service and Technology:  Customer service and technology expenses consist of costs associated with acquired and internally developed software, and research and development expenses, including fees to independent contractors and salaries and related expenses of personnel engaged in these activities.

Customer service and technology expenses the year ended December 31, 20102011 amounted to $734,000,$726,000, relatively consistent with $738,000$734,000 for the year ended December 31, 2009.2010.

Sales and Marketing:  Sales and marketing costs include all salaries and related expenses of sales and marketing personnel as well as business development expenses such as advertising, sales support materials, and trade show costs.

Sales and marketing costs the year ended December 31, 2010 amountedincreased by $72,000 or 38 percent, to $188,000, relatively consistent with $181,000$260,000 for the year ended December 31, 2009.2011, as compared to $188,000 for the year ended December 31, 2010.  The increase was due to the Company engaging a sales executive in Europe during the fourth quarter of 2010 to explore new business opportunities in this region.

Employee Stock Options:Stock-based Compensation:  For the year ended December 31, 2010,2011, employee stock option expense amounted to $358,000,$1,873,000, as compared to $183,000$517,000 for the year ended December 31, 2009,2010, an increase $175,000.$1,356,000.  The

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increase was attributed to the vesting of stock options, which were higher in 2011 due to 7,515,000the higher number of stock options granted to new senior management and related vesting expense inBoard members during the current year as compared to 1,870,000 stock options granted and related vesting expense in 2009.second quarter of 2011.

Depreciation:  Depreciation expense was $32,000 for the year ended December 31, 2011, compared to $22,000 for 2010, an increase of $10,000 or 45 percent.  The increase in depreciation was $22,000, a slight decrease fromdue to capital asset acquisitions totaling $92,000 during the $29,000 recorded for the year ended December 31, 2009.current year.

Interest Expense:  Interest expense reflects interest incurred from debt instruments and loans.  Interest expense for the year ended December 31, 20102011 was $314,000$227,000 compared to $768,000$269,000 for December 31, 2009,2010, representing a decrease of $454,000$42,000 or 5916 percent.  During 2010,2011, cash interest expense of $154,000$103,000 and non-cash interest expense of $160,000$124,000 was incurred related to the secured subordinated notes and notes payable.  Comparatively, cash interest expense of $260,000$154,000 and non-cash interest expense of $508,000$115,000 was recorded in 2009.  The reduction in interest expense was due to the full conversions of Series I, J, K and M subordinated notes during 2009.

Comparison of Years Ended December 31, 2009 and December 31, 2008

Loss:  Our loss for the year ended December 31, 2009 was $2,409,000, an increase of $54,000 or two percent from the loss of $2,355,000 reported for the year ended December 31, 2008.   The increase in loss was attributable to the increase in operating and interest expenses, partially offset the increase in revenues.

The Operational EBITDA loss was $1,669,000 for 2009 as compared to $1,550,000 for 2008, an improvement in the Operational EBITDA loss of $119,000 or eight percent. The increase in Operational EBITDA loss was a combination of an increase in sales and marketing expense, partially offset by an increase in revenues.

Revenues:  Revenues are comprised of services (application development activities, software implementation and license fees, training and consulting, product maintenance and customer support), application hosting and royalty fees.

Revenues increased to $759,000 for the year ended December 31, 2009 from $741,000 for the year ended December 31, 2008, representing an increase of $18,000 or two percent.  The increase in revenues was attributed to the increase in application hosting as a result of additional applications being hosted during 2009, partially offset by a decrease in services and royalty fees.

General and Administrative:  General and administrative expenses include, primarily: all salaries and related expenses (including benefits and payroll taxes) other than technology staff compensation (which is included in customer service and technology expenses), and sales and marketing staff compensation (which is included in sales and marketing expenses), occupancy costs, foreign exchange gains or losses, professional fees, insurance, investor relations, regulatory filing fees, and travel and related costs.

General and administrative expenses decreased by $216,000 or 15 percent, to $1,269,000 for the year ended December 31, 2009, as compared to $1,485,000 for the year ended December 31, 2008.  Savings over the same period of last year was mainly due to a significant reduction in licensing fees as a result of settlement of past debts for $240,000 less than the amounts previously recorded and lower financing fees, partially offset by an increase in investor relations and bad debt expense.

Customer Service and Technology:  Customer service and technology expenses consist of costs associated with acquired and internally developed software, and research and development expenses, including fees to independent contractors and salaries and related expenses of personnel engaged in these activities.

Customer service and technology expenses increased by $49,000 or seven percent, to $738,000 for the year ended December 31, 2009, as compared to $689,000 for the year ended December 31, 2008.  The increase in expenses was due primarily to the increase in staffing levels compared to last year.

Sales and Marketing:  Sales and marketing costs include all salaries and related expenses of sales and marketing personnel as well as business development expenses such as advertising, sales support materials, and trade show costs.

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Sales and marketing costs for the year ended December 31, 2009 amounted to $181,000, as compared to $117,000 for 2008, representing an increase of $64,000 or 55 percent.  The addition of a new sales leader and the related marketing and business development expenses attributed to the increase in sales and marketing costs compared to last year.

Employee Stock Options:  For the year ended December 31, 2009, employee stock option expense amounted to $183,000, as compared to $43,000 for the year ended December 31, 2008, an increase $140,000.  The increase was due to 1,870,000 stock options granted and related vesting expense in the current year as compared to 480,000 stock options granted and related vesting expense in 2008.

Depreciation:  Depreciation expense for the year ended December 31, 2009 was $29,000, relatively consistent with $33,000 recorded for the year ended December 31, 2008.

Interest Expense:  Interest expense reflects interest incurred from debt instruments and loans.  Interest expense for the year ended December 31, 2009 was $768,000 compared to $729,000 for December 31, 2008, representing an increase of $39,000 or five percent.  During 2009, cash interest expense of $260,000 and non-cash interest expense of $508,000 was incurred related to the secured subordinated notes and notes payable.  Comparatively, cash interest expense of $335,000 and non-cash interest expense of $394,000 was recorded in 2008.  The increase in interest expense was due to the accretion of Series L M and N subordinated notes, issuedas well as full repayment of notes payable during 2008 and the refinanced Series K-Extension notes during 2009.current year.

GOING CONCERN

While the accompanying consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern, certain adverse conditions and events cast substantial doubt upon the validity of this assumption.  Financial statements are required to be prepared on a going concern basis unless management either intends to liquidate the Company or cease trading or has no realistic alternative but to do so within the foreseeable future.  The going concern basis of presentation assumes that the Company will continue in operation for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of operations.  The Company has not yet realized profitableincurred negative annual cash flows from operations since inception and has relied on non-operational sourcesexpects to continue to expend substantial funds to continue to develop technology, build an infrastructure to support business development efforts and expand other areas of financing to fund operations.business including the acquisition of, or strategic investments in, complementary products, businesses or technologies.  The Company’s ability to continue as a going concern will be dependent on management’s ability to successfully execute its business plan including a
substantial increase in revenue as well as maintaining operating expenses at or near the same level as 2010.2011.  The Company cannot provide assurance that it will be able to execute on its business plan or assure that efforts to raise additional financings will be successful.

TheseThe consolidated financial statements do not include adjustments or disclosures that may result fromhave been prepared on the Company’s inabilitybasis of accounting principles applicable to continue as a going concern.  If the going concern assumption was not appropriate, for these consolidated financial statements, then adjustments would be necessary in the carrying valuesvalue of assets and liabilities, and the reported losses and the balance sheet classificationsclassification used.

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The continued existence beyond 20102011 is dependent on the Company’s ability to increase revenue from existing products and services, and to expand the scope of its product offering which entails a combination of internally developed software and business ventures with third parties, and to raise additional financing.

CRITICAL ACCOUNTING ESTIMATES

The preparation of consolidated financial statements in conformity with generally accepted accounting principlesIFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting years.  EstimatesThese estimates are used when determining items suchbased on management’s best knowledge of current events and actions that the Company may undertake in the future.  These estimates have been applied in a manner consistent with that in the prior periods and there are no known trends, commitments, events or uncertainties that we believe will materially affect the assumptions utilized in these consolidated financial statements.  Significant estimates made by the Company include the determination of the recoverable amount of intangible assets, the useful lives of property and equipment and other assets for depreciation purposes, amounts recorded as the allowance for doubtful accounts,accrued liabilities, valuation of stock-based payments, the fair value assigned to the debt and equity components of the secured subordinated notes and the expected requirements for non-operational funding.  Actual results could differ from thosethese estimates.

34The Company determines the fair value stock-base compensation using the Cox-Rubinstein binomial valuation model, which requires management to make assumptions regarding the volatility rate, risk free interest rate, average share price, expect term and dividend yield.


CRITICAL ACCOUNTING POLICIES

We periodically review our financial reporting and disclosure practices and accounting policies to ensure that they provide accurate and transparent information relative to the current economic and business environment. As part of this process, we have reviewed our selection, application and communication of critical accounting policies and financial disclosures. We have determined that the critical accounting policies related to our core ongoing business activities are primarily those that relate to revenue recognition.  Other significant accounting policies are described in Note 3 to our audited annual consolidated financial statements for the year ended December 31, 2010.2011.

REVENUE RECOGNITION

The Company’s revenues are derived from services (application development activities, software implementation and license fees, training and consulting, product maintenance and customer support), and application hosting and royalty fees.  Fees for services are billed separately from licenses of the Company’s products.  The Company recognizes revenue in accordance with Canadian GAAP, which in the Company’s circumstances, are not materially different

Revenue from the amounts that would be determined under provisionsrendering of FASB Accounting Standards Codification (ASC) Subtopic 985-605 (previouslyservices is recognized when the American Institutefollowing criteria are met:
·The amount of revenue can be measured reliably;
·The stage of completion can be measured reliably;
·The receipt of economic benefits is probable; and
·The costs incurred or to be incurred can be measured reliably.
·
Revenue from the sale of Certified Public Accountants Statements of Position (SOP) No. 97-2, “Software Revenue Recognition”, and as amended by Statement of Position 98-9, “Modification of SOP 97-2, Software revenue Recognition, With Respectgoods is recognized when the following criteria are met:
·The amount of revenue can be measured reliably;
·The risks and rewards of ownership have been transferred to the buyer;
·The receipt of economic benefits is probable; and
·The costs incurred or to be incurred can be measured reliably.

In addition to Certain Transactions”). Thethe above general principles, the Company also considersapplies the provisions of the Canadian Institute of Chartered Accountants (CICA) Emerging Issues Committee (EIC) 141 and CICA EIC 142, which is analogous to ASC 605, in determining the appropriatefollowing specific revenue recognition methodology.policies:

Multiple Deliverable Revenue Arrangements
In December 2009, the CICA issued EIC 175, Multiple Deliverable Revenue Arrangements, replacing EIC 142, Revenue Arrangements with Multiple Deliverables. This abstract was amended to (1) exclude from the application of the updated guidance those arrangements that would be accounted for in accordance with ASC 985; (2) provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and the consideration allocated; (3) require in situations where a vendor does not have vendor-specific objective evidence (VSOE) or third-party evidence of selling price, that the entity allocate revenue in an arrangement using estimated selling prices of deliverables; (4) eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method; and (5) require expanded qualitative and quantitative disclosures regarding significant judgments made in applying this guidance.

The Company adopted EIC 175 prospectively effective January 1, 2010.

The Company is required to determine the appropriate accounting under EIC 175, including whether the deliverables specified in a multiple element arrangement should be treated as separate units of accounting for revenue recognition purposes.  In the past, for arrangements involving multiple elements, the Company allocated revenue to each component based on VSOE of the fair value of each element.  Effective January 1, 2010, the Company has allocated revenue using the relative selling price method of the separate units of accounting.  The multiple elements in an arrangement typically might include one or more of the following: software, application development, maintenance, hosting, and/or other professional service offerings as described in Note 3 of the Company's Annual Financial Statements for 2009.  The Company allocates the arrangement fee, in a multiple element transaction, to the separate elements based on their relative selling prices, as indicated by VSOE or third-party evidence of selling price, and if both are not available, estimated selling prices are used.  The allocated portion of the arrangement which is undelivered is then deferred.

The Company's revenue arrangements may contain multiple elements; however, the adoption of EIC 175 did not have a material impact on the Company's financial statements.

 
3534
 

Hosting Fees
The Company earns revenue from the hosting of customer websites and applications.  Under existing hosting contracts, the Company charges customers a recurring periodic flat fee.  The fees are recognized as the hosting services are provided.

·Application Development Fees
Typically, development of applications for the Company’s customers are provided based on a predetermined fixed hourly rate basis.  Revenue is recognized as time is incurred throughout the development process.

Software License Revenue
The Company recognizes software license revenue in accordance with the terms of the license agreement and when the following criteria as set out in ASC Subtopic 985-605 are met:
·                 Persuasive evidence of an arrangement exists;
·                 Delivery has occurred;
·                 Fee is fixed or determinable; and
·                 Collectibility is probable.
Software license revenue consists of fixed license fee agreements involving perpetual licenses.

Software license agreements may be part of multiple element arrangements that include consulting and implementation services.  When these services are considered essential to the functionality of the license, the associated revenue is recognized on the basis of the percentage of completion method as specified by contract accounting principles.  When these services are not considered essential to the functionality of the license, the entire arrangement fee is allocated to each element in the arrangement based on the respective VSOE of the fair value of each element.  The amount allocated to license revenues is based on the price charged by the Company when the same element is sold in similar quantities to a customer of a similar size and nature.  If this amount is not determinable, the residual software license revenue is the amount of the total arrangement fee less the fair value of any undelivered elements.  VSOE used in determining fair value for installation, implementation and training is based on the standard daily rates for the type of service being provided multiplied by the estimated time to complete each task.  VSOE used in determining the fair value of maintenance and support is based on the annual renewal rates.  The revenue allocable to the software license is recognized when the revenue recognition criteria are met.  The revenue allocable to the consulting services is recognized as the services are performed.

·Implementation, Training and Consulting Service Fees
The Company receives revenue from implementation of its product offerings, consulting services and training services.  Customers are charged a fee based on time and expenses.  Revenue from implementation, consulting service and training fees is recognized as the services are performed or deferred until contractually defined milestones are achieved or until customer acceptance has occurred, as the case may be, for such contracts.

·Product Maintenance and Customer Support Fees
The Company receives revenue from maintaining its products and the provision of on-going support services to customers.  The maintenance and support fees are typically equal to a specified percentage of the customers’ license fee.  If associated with the fixed fee license model, the maintenance revenues received are recorded as deferred revenue and recognized on a straight-line basis over the contract period.

Services revenue from maintenance and support is recognized when the services are performed.  Maintenance and support revenues paid in advance are non-refundable and are recognized on a straight-line basis over the term of the agreement, which typically is 12 months.

UNADOPTED NEW
·Hosting Fees
The Company earns revenue from the hosting of customer websites and applications.  Under existing hosting contracts, the Company charges customers a recurring periodic flat fee.  The fees are recognized as the hosting services are provided.

·Multiple Deliverable Revenue Arrangements
The Company also enters into transactions that represent multiple elements arrangements, which may include one or more of the following: software, application development, maintenance, hosting, and/or other professional service offerings.  These multiple element arrangements are assessed to determine whether they can be sold separately in order to determine if they can be treated as more than one unit of accounting or element for the purpose of revenue recognition.  The Company allocates the arrangement fee, in a multiple element transaction, to the separate elements based on their relative selling prices, as indicated by vendor-specific objective evidence or third-party evidence of selling price, and if both are not available, estimated selling prices are used.  The allocated portion of the arrangement which is undelivered is then deferred.

RECENT ACCOUNTING PRONOUNCEMENTS

Business Combinations
In October of 2008, the CICAThe following accounting standards, amendments and interpretations have been issued Handbook Section 1582, Business Combinations, concurrently with Handbook Section 1601, Consolidated Financial Statements, and Handbook Section 1602, Non-controlling

36

Interests.  Section 1582, which replaces CICA Handbook Section 1581, Business Combinations, establishes standards for the measurement of a business combination and the recognition and measurement of assets acquired and liabilities assumed.  Section 1601, which replaces CICA Handbook Section 1600, carries forward the existing Canadian guidance on aspects of the preparation of consolidated financial statements subsequent to acquisition other than non-controlling interests.  Section 1602 establishes guidance for the treatment of non-controlling interests subsequent to acquisition through a business combination.  These new standardsbut are not yet effective for the Company’s interim and annual consolidated financial statements commencing on January 1, 2011 with earlier adoption permitted as of the beginning of a fiscal year.  The Company will considerCompany. Management is currently assessing the impact of the new standards on its consolidatedthe Company’s accounting policies and financial statements if the Company has a business combination.statement presentation.

International Financial Reporting Standards (IFRS)
·
IFRS 9, Financial Instruments was issued by the IASB in October 2010 and will replace IAS 39, Financial Instruments: Recognition and Measurement.  IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39.  The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9.  The new standard also requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39.  IFRS 9 is effective for annual periods beginning on or after January 1, 2013.  The IASB has proposed to move the effective date of IFRS 9 to January 1, 2015.
In 2006, the Canadian Accounting Standards Board (AcSB) published a new strategic plan that will significantly affect financial reporting requirements for Canadian companies.  The AcSB strategic plan outlines the convergence of Canadian GAAP with IFRS over an expected five year transitional period.

In February 2008, the AcSB confirmed that IFRS will be mandatory in Canada for profit-oriented publicly accountable entities for fiscal periods beginning on or after January 1, 2011. The Company’s first IFRS financial statements will be for the year ending December 31, 2011 and will include the comparative period for 2010.  Starting in the first quarter of 2011, the Company will provide unaudited consolidated financial information in accordance with IFRS including comparative figures for 2010.
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·IFRS 13, Fair Value Measurement was issued by the IASB in May 2011.  IFRS 13 establishes new guidance on fair value measurement and disclosure requirements for IFRSs and U.S. generally accepted accounting principles (GAAP).  The guidance, set out in IFRS 13 and an update to Topic 820 in the FASB’s Accounting Standards Codification (formerly referred to as SFAS 157), completes a major project of the boards’ joint work to improve IFRSs and US GAAP and to bring about their convergence.  The standard is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted.

The Company has assembled an IFRS transition team and is committed to the development of its IFRS changeover plan.  The Company has completed the impact analysis, evaluation and design phase and is now in the implementation and review phase.  As part of Company’s IFRS implementation plan, the Company will continue to review the impact on its business activities, its disclosure and internal controls over financial reporting and its financial reporting systems.
·IAS 1, Presentation of Financial Statements was amended by the IASB in June 2011 in order to align the presentation of items in other comprehensive income with US GAAP standards. Items in other comprehensive income will be required to be presented in two categories: items that will be reclassified into profit or loss and those that will not be reclassified.  The flexibility to present a statement of comprehensive income as one statement or two separate statements of profit and loss and other comprehensive income remains unchanged.  The amendments to IAS 1 are effective for annual periods beginning on or after July 1, 2012.

B.  LIQUIDITY AND CAPITAL RESOURCES

The Company has been funded to date primarily through a series of private placements of equity and convertible debentures, option and warrant exercises, sales of equity to strategic partners and gains from investments.  Since inception, the Company has received aggregate net proceeds of $96.6$101.2 million from debt and equity financing and has realized net proceeds of $25.8 million from disposal of investments. The Company has not earned profits to date and, at December 31, 2010,2011, has an accumulated deficit of $118.9$123 million.  The Company expects to incur losses into 20112012 and there can be no assurance that it will ever achieve profitability.  Operating results have varied on a quarterly basis in the past and may fluctuate significantly in the future as a result of a variety of factors, many of which are outside of the Company’s control.

The Company has incurred negative annual cash flows from operations since inception and expects to continue to expend substantial funds to continue to develop technology, build an infrastructure to support business development efforts and expand other areas of business including the acquisition of, or strategic investments in, complementary products, businesses or technologies.  The Company has historically relied on non-operational sources of financing to fund its operations.  The Company’s ability to continue as a going concern is dependent on management’s ability to successfully execute its business plan and to successfully repay or refinance obligations as they come due.  Management believes that it has the ability to raise additional financing.  The Company cannot provide assurance that it will be able to execute on its business plan or assure that efforts to raise additional financings would be successful.

Cash decreasedincreased by $136,000$1,709,000 to $90,000$1,760,000 as at December 31, 20102011 from $226,000$51,000 as at December 31, 2009.2010.  Please refer to the Consolidated Statements of Cash Flows for details of the increase in cash balance.

Current assets of $283,000$1,987,000 exceeded current liabilities (excluding deferred revenue) of $412,000 in the current fiscal year by $1,575,000. Current assets of $238,000 were exceeded by current liabilities (excluding deferred revenue) of $1,565,000 in the current fiscal year$1,650,000 by $1,282,000.  Current assets of $514,000 were exceeded by current liabilities (excluding deferred revenue) of $648,000 by $134,000$1,412,000 in the prior year.  Deferred revenue has been excluded from current liabilities as it is expected to be settled by resources other than cash.

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a) Operating
Cash outflows from operating activities declined to $1,577,000$1,890,000 in the current fiscal year compared to cash outflows from operating activities of $1,913,000$1,580,000 in the prior year.   The decline was due to with a decrease in non-cash working capital as per below.

Non-cash working capital resulted in outflows of $19,000 in fiscal 2011 as compared to inflows of $314,000$200,000 in fiscal 2010, as compared to outflowsa decline of $224,000 in fiscal 2009, an improvement of $538,000,$219,000, as summarized in the following table:
  2010  2009  Change 
  (in thousands on Canadian dollars) 
          
Accounts receivable $96  $52  $44 
Deposits and prepaid expenses  (1)  (7)  6 
Accounts payable  73   (239)  312 
Accrued liabilities  144   (27)  171 
Deferred revenue  2   (3)  5 
  $314  $(224) $538 

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   20112010Change
        (in thousands of Canadian dollars)
      
Accounts receivable  $       (36)$        63$       (99)
Deposits and prepaid expenses  (4)(1)(3)
Accounts payable  (161)69(230)
Accrued liabilities  18269113
    $       (19) $      200$       219

b) Investing
Investing activities resulted in cash outflows of $6,000$209,000 during fiscal 2010,2011, compared to $57,000cash inflows of $54,000 in 2009.2010.  Cash outflows from investing activities were the result of the acquisition of new capital and intangible assets during year.

c) Financing
Financing activities generated net inflows of $1,447,000$3,808,000 in fiscal 2010,2011, as compared to $1,736,000$1,367,000 in fiscal 2009.2010.  Cash inflows during the year were generated from the issuance of equity units for $1,018,000, and the exercise of warrants and options generated proceeds of $3,377,000 and $197,000, respectively, partially offset by the repayment of notes payable of $530,000, share issuance costs of $125,000 and interest payment of $129,000.  Cash inflows during 2010 were generated from the issuance of equity units for $1,008,000, notes payable for 859,000 and the exercise of warrants and options generated proceeds of $170,000 and $4,000, respectively, partially offset by the repayment of notes payable of $465,000, and share issuance costs of $129,000.  Cash inflows during 2009 were generated from the issuance$129,000 and interest payment of equity units for $495,000 and the exercise of warrants and options for proceeds of $1,320,000 and $154,000, respectively, partially offset by the repayment of notes payable of $233,000.$80,000.

d) Contractual Obligations
As at December 31, 2010, the Company's contractual obligations, including payments due by periods over the next five years, are as follows:
  Total  2011  2012  2013  2014  2015 
  (in thousands of Canadian dollars) 
                   
Operating leases $598  $156  $156  $156  $130  $- 
License agreements  209   44   55   55   55   - 
Notes payable  530   530   -   -   -   - 
Secured subordinated notes -principal repayment(i)
  960   600   -   360   -   - 
Secured subordinated notes - interest payment (i)
  136   91   36   9   -   - 
  $2,433  $1,421  $247  $580  $185  $- 
(i)  Assumes secured subordinated notes are held to maturity.


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FUNDING

Overview

The Company has been funded to date primarily through a series of private placements of equity and convertible debentures, option and warrant exercises, sales of equity to strategic partners and gains from investments.

Funding – 20102011
On February 14, 2011, the Company completed a transaction resulting in the issuance of 10,478,000 equity units, priced at $0.08 per unit, for gross proceeds of $838,000 and net proceeds of $713,000 after deducting financing costs of $125,000.  Each unit consists of one common share and one share-purchase warrant.  Each warrant may be converted into a common share at the exercise price of $0.12 at any time prior to February 14, 2013.

In addition to the above financing costs, the Company issued 2,250,000 compensation options to the financing agent, Saratoga Finance Inc.  The options entitled the holder to purchase up to 2,250,000 equity units at a purchase price of $0.08 per unit, at any time prior to February 14, 2013.  Each equity unit consisted of one common share and one warrant.  Each warrant may be converted into a common share at an exercise price of $0.12, at any time prior to February 14, 2013.   These compensation options were exercised during 2011, resulting in gross proceeds of $180,000.

During the year ended December 31, 2011, Series I and L note holders, along with warrant holders from equity private placements in 2010 and 2011, exercised 26,260,000 common share-purchase warrants for total proceeds of $3,377,000.
Also during the year ended December 31, 2011, total proceeds of $197,000 were realized from the exercise of 1,334,000 stock options at an average exercise price of $0.15.

Funding – 2010
On December 22, 2010, the Company completed a transaction resulting in the issuance of 7,816,000 equity units, priced at $0.08 per unit, for net proceeds of $625,000.  Each unit consists of one common share and one share-purchase warrant.  Each warrant may be converted into a common share at the exercise price of $0.12 at any time prior to December 22, 2012. Subsequent to the year ended December 31, 2010, the Company completed a transaction resulting in the issuance of 10,478,000 equity units, priced at $0.08 per unit for net proceeds of $729,00.

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On August 9, 2010, the Company closed an equity transaction with GEM, securing gross proceeds of $383,000 and net cash proceeds of $300,000 after deducting legal fees and one half of the commitment fee of $90,000.  In connection with the transaction, the Company issued 2,191,000 common shares and 6,000,000 share-purchase warrants with an exercise price of $0.27 and an expiry date of August 9, 2013.

On June 16, 2010, the Company entered into an agreement with GEM Global Yield Fund Limited (“GEM”) for a $6,000,000 equity line of credit.  The Company will control the timing and maximum amount of any draw downs under this facility, and has the right, not the obligation, to draw down on available funds by requiring GEM to subscribe for the Company’s common shares at a 10 percent discount to the average closing price of the Company’s common shares over a 15 day trading period following the draw down notice date, provided that the Company’s share price during the notice period is greater than the floor price of $0.17 per share as defined in the agreement.  GEM will hold freely trading shares of the Company through a share lending facility provided by a current shareholder.  As part of the equity credit line transaction, the Company has agreed to issue 6,000,000 warrants to GEM. The warrants are exercisable for a period of three years from the closing notice date at an exercise price of $0.27 per share.  The warrants are not issuable until the first draw down of funds have occurred.

During the year ended December 31, 2010, Series I and L warrant holders exercised 1,083,000 warrants for total proceeds of $170,000.

Funding – 2009

On November 18, 2009, PowerOne exercised the compensation options and purchased 747,000 equity units, consisting of 747,000 common shares valued at $121,000 and 747,000 warrants valued at $72,000.  The Company recorded total proceeds of $112,000, which were attributed to share capital.

On September 30, 2009, the Company completed a transaction resulting in the issuance of 2,604,000 equity units, priced at $0.19 per unit, for net proceeds of $495,000.  Each unit consists of one common share and one-half common share purchase warrant.  Each full warrant may be converted into a common share at the exercise price of $0.25 at any time prior to September 30, 2011.

During the quarter ended March 31, 2009, the Company announced the conversion of secured subordinated notes and the additional proceeds secured from the exercise of warrants.  Series M note holders have converted $660,000 out of a total of $678,000 debentures and exercised a total of 13,200,000 common share-purchase warrants out of a possible 13,560,000 warrants, for total proceeds of $1,320,000.  As per the terms of the debenture, the remaining warrant options have expired.

As a result of this transaction, the Company issued 26,400,000 common shares, comprised of 13,200,000 common shares from the conversion of the Series M notes and 13,200,000 common shares from the exercising of the associated warrants.

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During the year ended December 31, 2009, total proceeds of $42,000 were realized from the exercise of 280,000 stock options at an average exercise price of $0.15.

C.  RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

Not applicable.

D.  TREND INFORMATION

FOREIGN EXCHANGE RISK

The Company’s revenue from software licensing and related services and e-commerce enabling agreements is transacted in Canadian and U.S dollar currencies.  As the majoritya portion of the Company’s revenues are realized in U.S. dollar and expenses are transacted in Canadian dollar, the appreciation of the U.S. dollar against the Canadian dollar may have a favorable impact on our results. The Company does not use derivative instruments to manage exposure to foreign exchange fluctuations. During the year ended December 31, 2010,2011, the Company incurred foreign exchange losses in the amount of $25,000 (2009 - $4,000, 2008 - $16,000)$3,000 (2010 – 24,000), which is recorded in general and administrative expenses.

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INTEREST RATE RISK

The Company has limited exposure to fluctuations in interest rates.  The Company does not use derivative instruments to reduce its exposure to interest rate risk.

CREDIT RISK

Credit risk arises from the potential that a customer will fail to meet its contractual obligations under a software licensing and related services agreement or an e-commerce enabling agreement.

The Company invests its cash in investments that are of high credit quality.  Given these high credit ratings, the Company does not expect any investees to fail to meet their obligations.

In 2010,2011, two customers accounted for 50 percent and 31 percent, respectively (2010 – one customer accounted for 69 percent (2009 – two customers accounted for 62 percent and 19 percent, respectively, 2008 – two customers accounted for 61 percent and 13 percent, respectively)75 percent) of total revenues.  At December 31, 2010, two2011, three customers accounted for 3242 percent, 18 percent and 3012 percent, respectively (2009(2010 – fourtwo customers accounted for 33 percent 22 percent, 21 percent and 1631 percent, respectively) of total accounts receivable.

VALUATION AND QUALIFYING ACCOUNTS
DescriptionBalance at beginning of YearAdditionsDeductionsBalance at end of YearBalance at beginning of YearAdditionsDeductionsBalance at end of Year
Charged to costs and expensesCharged to other AccountCharged to costs and expensesCharged to other Account
(in thousands)
(in thousands of Canadians dollars)(in thousands of Canadians dollars)
Allowance for doubtful debts        
Year 2008-$11--$11
Year 2009$11$58-$69-$11$58-$69-
Year 2010--------
Year 2011----

E.  OFF-BALANCE SHEET ARRANGEMENTS

The Company does not have any off-balance sheet special purpose entities or other off-balance sheet arrangements.

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F.  TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

As at December 31, 2010,2011, the Company's contractual obligations, including payments due by periods over the next five years, are as follows:

  Total  2011  2012  2013  2014  2015 
  (in thousands) 
                   
Operating leases $598  $156  $156  $156  $130  $- 
License agreements  209   44   55   55   55   - 
Notes payable  530   530   -   -   -   - 
Secured subordinated notes -principal repayment(i)
  960   600   -   360   -   - 
Secured subordinated notes - interest payment (i)
  136   91   36   9   -   - 
  $2,433  $1,421  $247  $580  $185  $- 
 Total20122013201420152016
 
(in thousands of Canadian dollars)
 
       
Operating leases$    442$    156 $    156$    130$        -$        -
License agreements150505050--
 $    592$    206$    206$    180 $       -$        -
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(i)  Assumes secured subordinated notes are held to maturity.

ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. DIRECTORS AND SENIOR MANAGEMENT
 
The following table sets forth the name, age and position of each of the individuals who served as a director and/or an executive officer during the past year. This list includes the dates of resignation and appointment, as applicable, of individuals who resigned or were appointed directors or officers during the past year. This information is supplied based on our records and information furnished by our executive officers and directors.
 
Name, Age and Municipality of
Residence
Director SincePosition with the Company
Duncan G. Copeland, 53Anthony DeCristofaro, 58
Potomac, MD, USAWoodbridge, Ontario
June 23, 2004May 31, 2011Director and Chief Executive Officer, since July 11, 2007non-executive Chairman of the Board
Jim Moskos, 47,48,
Toronto, Ontario
June 7, 1999
Director and Chief Operating Officer, since July 11, 2007
President, Technology Group from October 19, 1999 to July 11, 2007
 Amit Monga, 44
Toronto, Ontario
May 31, 2011Director and Chief Executive Officer
T. Christopher Bulger, (1)(2)(3) 52,53,
Toronto, Ontario
May 28, 1996
Director and non-executive Chairman of the Board since October 14, 2005 to May 31, 2011
non-executive Chairman of the Audit Committee since May 31, 2011
Marvin Igelman (1)(2)(3) 49,
Thornhill, Ontario
May 31, 2011Director
Ryan Deslippe (1)(2)(3) 33,
Amherstburg, Ontario
May 31, 2011Director
Duncan G. Copeland, 54*
Potomac, MD, USA
June 23, 2004Director and Chief Executive Officer, since July 11, 2007 to May 31, 2011
Darroch Robertson (1)(3), 58,59*
St. Thomas, Ontario
June 25, 2003Director
John Varghese (1)(2)(3), 45,*46*
Toronto, Ontario
July 25, 2009Director since July 29, 2009 to March 25, 2010 and from April 26, 2011 to May 31, 2011
________________________
(1)Member of the Management Resources and Compensation Committee
(2)Member of the Corporate Governance Committee
(3) Member of the Audit Committee
* Mr. Varghese resignedResigned from the Board and all of its Committees effective from March 25, 2010.May 31, 2011.

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The business experience of each of our current directors and executive officers for at least the last five years is as follows:
 
Directors
 
Duncan CopelandAnthony DeChristofaro, Washington, DCWoodbridge, Ontario
Director since June 23, 2004May 31, 2011
Chief Executive OfficerNon-executive Chairman of the Board of Directors

Mr. Copeland has been our Chief Executive Officer since July 11, 2007. He has beenDeCristofaro is currently CEO of Realbiz Media and brings 25 years of computer industry experience and three M&A transactions valued at more than CDN $600 million. Prior to establishing iseemedia as Chairman and CEO in 2002, which merged with Synchronica in 2010, he was President and CEO of MGI Software, which he co-founded in 1996 and was sold to Roxio in 2001. Prior to MGI, Mr. DeCristofaro was a Director of the Company since its inception, except for the period from 2001-2004. Mr. Copeland has been afounding board member of the faculties of the Richard Ivey School of Business, The University of Western Ontario and the Robert Emmett McDonough School of Business, Georgetown University. Mr. Copeland holds a doctorate from the Harvard Business School.Delrina, which was purchased by Symantec in 1995.

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Jim Moskos, Toronto, Ontario
Director since June 7, 1999
Chief Operating Officer

Mr. Moskos has been Chief Operating Officer of the Company since July 11, 2007. Mr. Moskos served as President of the Technology Group since from October 19, 1999 to July 11, 2007 and Vice President - Technology from September 1997 to October 19, 1999.  From September 1994 to August 1997, Mr. Moskos was Senior Technology Manager for the Canadian Department of Indian Affairs and Northern Development responsible for setting the technical direction for all aspects of application development.

Dr. Amit monga, Toronto, Ontario
Director since May 31, 2011
Chief Executive Officer

Dr. Monga is the CEO of the company and is a highly respected thought leader in business circles in North America on new technologies, software trends and business models and brings a unique background in technology and capital markets to Northcore. He currently serves on the boards of Poynt Corporation and Sprylogics International. He is a successful angel investor who has previously worked as an investment banker, venture capitalist and has founded a US based on-demand procurement software company that was acquired by a NASDAQ-listed company. Dr. Monga received his PhD in Mechanical Engineering from the University of Alberta, specializing in advanced genetic algorithms, where he currently serves as a Member of Dean's Business Advisory Council at the Alberta School of Business.

T. Christopher Bulger, Toronto, Ontario
Director since May 28, 1996
Non-executive Chairman of the Board of Directors, ChairmanAudit Committee and member of the Management Resources and Compensation Committee and member of the Corporate Governance and Audit Committees

Mr. Bulger has been the non-executive Chairman of the Board since October 14, 2005 and a director of the Company since May 28, 1996. Mr. Bulger provides consulting to number of companies, including the role of Chief Financial Officer for Hy-Power Coatings Ltd., a company innovating insulation properties for paints and windows using nano technology to reduce energy consumption and Bio-Organic Catalyst of Canada Inc., a company offering science based organic solutions for waste management, using patented technology to remove toxins from wastewater and enhance energy production from waste. Mr. Bulger was Chairman and CEO of Megawheels Technologies Inc., (“Megawheels”) from Jan 01, 2001 to April 30, 2007, a software and solutions provider to the online classified advertising industry. From December 1999 to December 2001, Mr. Bulger was President and Chief Executive Officer of eLab Technology Ventures Inc. Mr. Bulger served as Executive Vice President of our Company from September 1998 to December 1999 and Chief Financial Officer of the Company from April 1996 to September 1998. Mr. Bulger is a CFA, holds an MBA from INSEAD, France and an HBA from The Richard Ivey School of Business, Canada.

Marvin Igelman, Thornhill, Ontario
Director since May 31, 2011
Chairman of the Corporate Governance Committee and member of the Management Resources and Compensation and Audit Committees

Mr. Igelman was founder and CEO of Unomobi, a mobile advertising and messaging firm, before the company was acquired by Poynt Corporation. Prior to Unomobi, he was President and CEO of Brandera which operated Portfolios.com a leading online B2B marketplace for the graphic arts and creative community. Mr. Igelman is considered to be an innovator in the social, mobile, media and search technology fields having authored numerous patent applications. He graduated from Osgoode Hall Law School in 1986 and was admitted to the Law Society of Upper Canada in 1988.

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Ryan Deslippe, Amherstburg, Ontario
Director since May 31, 2011
Chairman of the Management Resources and Compensation Committee and member of the Corporate Governance and Audit Committees

Mr. Deslippe co-founded Selectcore in 1999 as President and led its successful growth over the past decade to revenues in excess of CDN $100 million, ranking the company as one of the fastest growing firms in Canada between the period 2006 to 2010. At Selectcore, he led the development and launch of its Iridium MasterCard and ReCash - two industry first products in Canada. From 2003 to 2006, Mr. Deslippe also co-founded and was a director of Datazinc, a successful 6 Sigma consulting firm. He was the recipient of the 2006 Profit 100 Magazine Young President Award. Mr. Deslippe is a past Board member of various non-profit organizations.

Duncan Copeland, Washington, DC
Director from June 23, 2004 to May 31, 2011

Mr. Copeland has been our Chief Executive Officer since July 11, 2007. He has been a Director of the Company since its inception, except for the period from 2001-2004. Mr. Copeland has been a member of the faculties of the Richard Ivey School of Business, The University of Western Ontario and the Robert Emmett McDonough School of Business, Georgetown University. Mr. Copeland holds a doctorate from the Harvard Business School.

Darroch (Rick) Robertson, St. Thomas, Ontario
Director sincefrom June 25, 2003 to May 31, 2011
Chairman of the Audit Committee and member of the Management Resources and Compensation Committee
 
Mr. Robertson has been an Associate Professor of Business at the Richard Ivey School of Business, The University of Western Ontario, for the past twelve years.  He has served as both the Director of the MBA program and the Director of the undergraduate HBA program at the Ivey School.  Mr. Robertson was also a director and chair of the audit committee of Stackpole Limited, a TSX listed company.  Mr. Robertson has also served as an elected member of council for the Institute of Chartered Accountants of Ontario, where he was chair on the audit committee and by-laws committee. Mr. Robertson is a FCA and holds an MBA and PhD (Business) from the University of Western Ontario.

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John Varghese, Toronto, Ontario
Director Fromfrom July 25, 2009 to March 25, 2010 & April 26 to May 31, 2011
Member of the Audit Committee, Management Resources and Compensation Committee and Corporate Governance Committee
Mr. Varghese is Chief Executive Officer and a Director of VentureLink Funds and the President and Director of the General Partner of the Manager. Mr. Varghese has over 20 years professional experience ranging from venture capital and investment banking to senior management and board of director roles in various industries. He has held COO and CFO positions at start-up organizations, as well as senior management roles within multi-national corporations including Royal Bank Capital Corporation, Midland Walwyn Capital Inc. (Merrill Lynch Canada), Dell Computer Corporation and Jim Pattison Industries Ltd. Currently Mr. Varghese is an observer or board member on numerous investee companies and University of Toronto’s Business Board of Directors, University of Toronto Asset Management Corporation and Canadian Venture Capital Association.   Mr. Varghese sits on the government relations committee of the CVCA. He is past Chairman of Ventus Energy Inc, Orion Securities Inc. and MCCI Communications Inc, all successful exits of VentureLink Funds. Mr. Varghese is a founding Board member of Bay Street Fore a Cau$e Inc. a not-for-profit corporation that supports numerous children’s charities across the GTA.  He is currently Audit Committee chair of a public entity New Sage and on the audit committee of Nexgen Financial.  Mr. Varghese is a CA. Mr. Varghese resigned from the Board and all of its Committees effective from March 25, 2010.  The Company is in the process of filling in the position.

Director’s relationship to Megawheels Technologies Inc. subject to Cease Trade Order
Mr. Bulger, the non-executive Chairman and a director of the Company, was formerly the Chairman and a director of Megawheels, which was listed on the TSX Venture exchange under the symbol "MWT", and which was issued a cease trade order on January 9, 2007 by the Ontario Securities Commission under paragraph 2 and paragraph 2.1 of subsection 127(1) and subsection 127(5) because Megawheels failed to provide continuous disclosure material of audited annual financial statements for the year ended August 31, 2006. Megawheels has undergone an orderly wind-up of operations.
 
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B. COMPENSATION  
 
Summary Compensation Table

The following table provides a summary of compensation earned during the most recently completed fiscal year by the Company’s Named Executive Officers (“NEOs”). The Company’s NEOs, as at the end of 2010,2011, were our Chief Executive Officer, Duncan Copeland, and our Chief Operating Officer, Jim Moskos.Officer.
   AwardsPayouts  AwardsPayouts 
Annual Compensation    Restricted Annual Compensation Restricted  
   Options/ Shares or  Options/Shares or�� 
     Other Annual  SARs RestrictedLTIPAll Other  Other AnnualSARsRestrictedLTIPAll Other
  Salary Bonus Compensation  Granted Share UnitsPayoutCompensation SalaryBonusCompensationGrantedShare UnitsPayoutCompensation
Name And Principal PositionYear ($) ($) 
($)(1)
  (#)($)Year($)
($)(1)
(#)($)($)($)
                  
Duncan Copeland (CEO)2010 30,000 Nil Nil  1,000,000 Nil
Amit Monga (CEO)
(From June 1)
    2011105,000NilNil2,900,000NilNilNil
Duncan Copeland
(From January 1 to May 31)
201112,500NilNil300,000NilNilNil
2009 30,000 Nil Nil  260,000 Nil201030,000NilNil1,000,000NilNilNil
2008 45,000 Nil Nil  Nil Nil200930,000NilNil260,000NilNilNil
                   
Jim Moskos (COO)2010 200,000 Nil 12,000  1,350,000 NilNilNil2011200,000Nil12,000850,000NilNilNil
2009 200,000 Nil 12,000  430,000 NilNilNil2010200,000Nil12,0001,350,000NilNilNil
2008 200,000 Nil 12,000  Nil Nil2009200,000Nil12,000430,000NilNilNil

 (1)The Company’s provision of automotive related expenses.
 
Our Company has a stock option plan (the “Plan”) which was originally adopted on May 15, 1996, and as amended most recently by shareholder approval on June 28, 2010,April 26, 2011, and currently provides that options may not be granted to purchase more than 16,550,00026,550,000 common shares. The Plan provides for the issuance of

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stock options to directors, officers and full time employees of the Company and it subsidiaries or any other person engage to provide ongoing services to the Company, which may expire as much as 10 years from the date of grant, at prices not less than the fair market value of the common shares on the date of grant. The Management Resources and Compensation Committee of the Board of Directors, whom administer the Plan, reserves the right to attach vesting periods to stock options granted.  For options granted to senior management during the fiscal year ended December 31, 20102011 see Summary Compensation Table above.
(25)
 
During 2010,2011, we did not provide any pension, retirement or similar benefits to our directors and officers as a group.
 

Compensation of Directors

       For the 20102011 financial year, directors received no cash payment as fees for meetings of the Board or Committees of the Board, which they attend, and no cash payments as fee for the signing of any resolution of directors or documents on behalf of the Company.  All directors are reimbursed for reasonable out-of-pocket travel and other expenses incurred by them in attending meetings of the Board or Committee meetings.

The Management Resources and Compensation Committee is responsible for recommendations to the Board regarding the granting of incentive stock options to directors to encourage their serving on the Board and Committees, to afford them the opportunity to be compensated properly, and to provide them with an equity stake in the Company.

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The Following table provides a summary of the option grants to outside directors during the fiscal year ended December 31, 2010,2011, which were not included in the summary compensation table above.

STOCK OPTION GRANTS TO OUTSIDE DIRECTORS DURING THE FISCAL YEAR ENDED DECEMBER 31, 2010
Name# Options GrantedPrice CDN$Date of GrantExpiry Date of Option
Christopher Bulger1,350,000$0.095 -$0.20Mar 30 & Nov 16, 2010Mar 29 & Nov.15, 2015
Darroch Robertson   500,000$0.095 -$0.20Mar 30 & Nov 16, 2010Mar 29 & Nov.15, 2015
STOCK OPTION GRANTS TO OUTSIDE DIRECTORS DURING THE FISCAL YEAR ENDED DECEMBER 31, 2011
 
Name#Options GrantedPrice CDN$Date of GrantExpiry Date of Option
Anthony DeCristofaro1,200,000$0.315May 31, 2011May 30, 2016
Christopher Bulger   600,000$0.19April 4, 2011April 3, 2016
Marvin Igelman1,000,000$0.315May 31, 2011May 30, 2016
Ryan Deslippe1,000,000$0.315May 31, 2011May 30, 2016
Darroch Robertson   300,000$0.19April 4, 2011April 3, 2016
John Varghese   300,000$0.19April 4, 2011April 3, 2016

During the 20102011 financial year, Mr. Bulger, Chairman of the Board, received $60,000$50,000, cash compensation for acting as Chair of the Board.
 
C.           BOARD PRACTICES
 
Our articles of incorporation currently provide for a Board of Directors consisting of not less than 3 and not more than 15 directors, to be elected annually. The Business Corporations Act (Ontario) provides that, where a minimum and maximum number of directors is provided for in the articles of a company, the directors of that company may, if empowered by special resolution of the shareholders, by a resolution determine the number of directors to be elected at each annual meeting of the shareholders.

Our Board of Directors presently consists of four directors. Under Canadian law, a majority of our Board of directors and of each of our Board Committees must be residents of Canada, subject to certain exceptions.  Each of our directors holds office until the next annual meeting of shareholders, until his successor has been elected and qualified, or his earlier resignation or removal.  Our executive officers are appointed by our Board of directors and serve at the discretion of our Board of Directors.
 
None of the directors have any contract or arrangement entitling them to benefits upon termination of their directorship.
 
The three committees of the Board are the Audit Committee, Management Resources and Compensation Committee, and the Corporate Governance Committee.
 
The Audit Committee, all of whose members are unrelated as defined by the TSX Corporate Governance Guidelines and Independent as defined by Nasdaq listing standards, meets with our management

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and our auditors on a periodic basis, before the release of quarterly results and before submission of our annual financial statements to the Board. The committee is responsible for the review and assessment of our audit practices, financial reporting and internal controls, inquiry of the auditors as to cooperation in access and disclosure by our management and the ultimate approval of our annual financial statements for submission to the Board and to the shareholders. The committee is also responsible for the appointment, compensation and oversight of the work of our auditors (including resolution of disagreements between management and our auditors regarding financial reporting).  During the year our Audit Committee consists of Darroch Robertson (Chairman), Christopher Bulger and John Varghese. Mr. Robertson and Mr. Varghese resigned from the Board and all of its Committees effective from March 25, 2010. The Company is in the process of filling in the position of third member of the Committee.May 31, 2011 and replaced by Marvin Igelman and Ryan Deslippe.
 
The Management Resources and Compensation Committee, all of whose members are unrelated as defined by the TSX Corporate Governance Guidelines and Independent as defined by Nasdaq listing standards, is responsible for recommendations to the Board regarding the appointment or removal of executive officers, reviewing the performance of the executive officers and fixing their compensation. The committee is also responsible for administering our stock option plan and ensuring that salary and benefit programs are continuously suitable for attracting, retaining and encouraging the development of knowledgeable, experienced and capable management and employees. During the year, the Management Resources and Compensation Committee of our Company consists of Christopher Bulger (Chairman), Darroch Robertson and John Varghese all of whom were directors of our Company. Mr. Robertson and Mr. Varghese resigned from the Board and all of its Committees effective from March 25, 2010. The Company is in the process of filling in the position of third member of the Committee.May 31, 2011 and replaced by Marvin Igelman and Ryan Deslippe.

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The Corporate Governance Committee, all of whose members are unrelated as defined by the TSX Corporate Governance Guidelines and Independent as defined by Nasdaq listing standards, oversees the implementation of our governance practices.  The committee also oversees the process for nominations to the Board and assesses the overall effectiveness of the Board. During the year, the Corporate Governance Committee consists of Christopher Bulger (Chairman) and John Varghese; both of them were directors of the Company. Mr. Varghese resigned from the Board and all of its Committees effective from March 25, 2010. The Company is in the process of filling in the position of third member of the Committee.May 31, 2011 and replaced by Marvin Igelman and Ryan Deslippe.

C. 1.  AUDIT COMMITTEE INFORMATION
 
As a reporting issuer in jurisdictions that have adopted Multilateral Instrument 52-110 Audit Committees (“MI 52-110”) the Company is required to provide disclosure with respect to its Audit Committee including the text of the Audit Committee’s Charter, composition of the Committee, and the fees paid to the external auditor.
 
1. The Audit Committee’s Charter

A Copy of the Audit Committee Charter adopted by the Board of Directors on June 04, 2009April 26, 2011 is attached to this Annual Report as Exhibit 4.26.

2. Composition of the Audit Committee
NameRelevant Education and Experience
Darroch Robertson*‡
Mr. Robertson has been an Associate Professor of Business at the Richard Ivey School of Business, The University of Western Ontario, for the past twelve years.  He has served as both the Director of MBA program and the Director of the undergraduate HBA program at the Ivey School.  Mr. Robertson was also a director and chair of the audit committee of Stackpole Limited, a TSX listed company.  Mr. Robertson has also served as an elected member of council for the Institute of Chartered Accountants of Ontario, where he was chair on the audit committee and by-laws committee. Mr. Robertson is a CA and holds an MBA and PhD (Business) from the University of Western Ontario.
Christopher Bulger*‡Mr. Bulger has been the non-executive Chairman of the Board since October 14, 2005 and a director of the Company since May 28, 1996. Mr. Bulger provides consulting to number of companies, including the role of Chief Financial Officer
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for Hy-Power Coatings Ltd., a company innovating insulation properties for paints and windows using nano technology to reduce energy consumption and Bio-Organic Catalyst of Canada Inc., a company offering science based organic solutions for waste management, using patented technology to remove toxins from wastewater and enhance energy production from waste. Mr. Bulger was Chairman and CEO of Megawheels Technologies Inc., (“Megawheels”) from Jan 01, 2001 to April 30, 2007, a software and solutions provider to the online classified advertising industry. From December 1999 to December 2001, Mr. Bulger was President and Chief Executive Officer of eLab Technology Ventures Inc. Mr. Bulger served as Executive Vice President of our Company from September 1998 to December 1999 and Chief Financial Officer of the Company from April 1996 to September 1998. Mr. Bulger is a CFA, holds an MBA from INSEAD, France and an HBA from The Richard Ivey School of Business, Canada.
John Varghese*‡^Marvin Igelman*Mr. Varghese is Chief Executive OfficerIgelman was founder and CEO of Unomobi, a Managing Partner of VentureLink Fundsmobile advertising and messaging firm, before the company was acquired by Poynt Corporation. Prior to Unomobi, he was President and DirectorCEO of Brandera, which operated Portfolios.com a leading online B2B marketplace for the graphic arts and creative community. Mr. Igelman is considered to be an innovator in the social, mobile, media and search technology fields having authored numerous patent applications. He graduated from Osgoode Hall Law School in 1986 and was admitted to the Law Society of Upper Canada in 1988.
Ryan Deslippe*
Mr. Deslippe co-founded Selectcore in 1999 as President and led its successful growth over the past decade to revenues in excess of CDN $100 million, ranking the company as one of the General Partnerfastest growing firms in Canada between the period 2006 to 2010. At Selectcore, he led the development and launch of its Iridium MasterCard and ReCash - two industry first products in Canada. From 2003 to 2006, Mr. Deslippe also co-founded and was a director of Datazinc, a successful 6 Sigma consulting firm. He was the recipient of the Manager.2006 Profit 100 Magazine Young President Award. Mr. Varghese has over 20 years professional experience ranging from venture capital and investment banking to senior management and board of director roles in various industries. He has held COO and CFO positions at start-up organizations, as well as senior management roles within multi-national corporations including Royal Bank Capital Corporation, Midland Walwyn Capital Inc. (Merrill Lynch Canada), Dell Computer Corporation and Jim Pattison Industries Ltd. Currently Mr. Varghese is an observer or board member on numerous investee companies and University of Toronto’s Business Board of Directors, University of Toronto Asset Management Corporation and Canadian Venture Capital Association.   Mr. Varghese sits on the government relations committee of the CVCA. He is past Chairman of Ventus Energy Inc, Orion Securities Inc. and MCCI Communications Inc, all successful exits of VentureLink Funds. Mr. VargheseDeslippe is a foundingpast Board member of Bay Street Fore a Cau$e Inc. a not-for-profit corporation that supports numerous children’s charities across the GTA.  He is currently Audit Committee chair of a public entity New Sage and on the audit committee of Nexgen Financial.  Mr. Varghese is a CA.various non-profit organizations.
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(*) independent as such term is defined in MI 52-110
(‡) financially literate as such term is defined in MI 52-110
(^) Mr. Varghese resigned from the Board and all of its Committees effective from March 25, 2010.

3. Reliance on Certain Exemptions

At no time since the commencement of the Company’s most recently completed financial year has the Company relied on the exemption in Section 2.4 of MI 52-110 (De Minimis Non-audit Services), Section 3.3(2) (Controlled Companies), Section 3.6 (Temporary Exemption for Limited and Exceptional Circumstances), or an exemption from MI 52-110, in whole or in part granted under Part 8 of MI 52-110, nor has the Company relied on Section 3.8 (Acquisition of Financial Literacy) of MI 52-110.

4. Audit Committee Oversight

Directly responsible for overseeing the work of the external auditor engaged for the purpose of preparing or issuing an auditor's report or performing other audit, review or attest services for the issuer, including the resolution of disagreements between management and the external auditor regarding financial reporting.  The Committee also recommends fees of the external auditors to the Board of Directors.

5. Pre-Approval Policies

Pursuant to the Audit Committee Charter Adopted by the Board of Directors on June 28, 2010, the Audit Committee is responsible for the pre-approval of all non-audit services to be provided to the Company or its subsidiary entities by the independent auditor.

 
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D.D. EMPLOYEES  
The number of our employees as of February 29, 2012 is increased by one employee in Technical Services departments as compared to the number of our employees as of February 28, 2011. The break-up is as follows:
North America
Sales and Marketing2
Technical Services10
Finance Legal Affairs and Admin3
Executive2
TOTAL17

As of February 28, 2011 we employed a total of 16 full-time employees as follows:
 North America
Sales and Marketing2
Technical Services9
Finance Legal Affairs and Admin3
Executive2
TOTAL16

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There has been no change in the number of employees appointed in the last year.

As of March 15, 2010 we employed a total of 17 full-time employees as follows:
 North America
Sales and Marketing2
Technical Services10
Finance Legal Affairs and Admin3
Executive2
TOTAL17

The number of our employees as of March 30, 2009 is increased by two employees from Sales and Marketing and Technical Services departments as compared to the number of our employees as of March 30, 2009.

As of March 30, 2009 we employed a total of 15 full-time employees as follows:
North America
Sales and Marketing1
Technical Services9
Finance Legal Affairs and Admin3
Executive2
TOTAL15

E.    SHARE OWNERSHIP
 
 
The following table sets forth information concerning share and option ownership of each of our current directors and officers as of February 28, 2011:29, 2012:
Name
Number of
Common Shares
Shares Owned (1)
Number of Common
Underlying Options (2)
Exercisable/
Unexercisable
Range of Exercise
Prices of Options
Range of Expiration
Dates of Options
Percentage of Common
Common Shares Beneficially
Beneficially Owned (3)
      
Christopher Bulger1,003,229958,2291,165,000/800,0002,403,335/116,665$0.095 - $0.20$0.2208/04/11 - 11/15/1504/03/16*
      
Jim Moskos389,9371,480,000/800,0002,785,557/344,443$0.095 - $0.20$0.31508/04/11 - 11/15/1505/30/16*
      
Anthony DeCristofaro-666,666/533,334$0.31504/03/2016-
      
Darroch RobertsonAmit Monga-5,000623,333/291,6671,611,110/1,288,890$0.3150.095 - $0.2004/03/201608/04/11 - 11/15/15*
      
Marvin Igelman-555,555/444,445$0.31504/03/2016-
      
Duncan CopelandRyan Deslippe-569,5501,046,669/508,331555,555/444,445$0.3150.095 - $0.2004/03/201608/04/11 - 11/15/15*
      
* Represents less than 1 percent.
 
(1)      Represents shares owned beneficially by the named individual other than those shares, which may be acquired under our Company's option plans.  Unless otherwise noted, all persons referred to above have sole voting and sole investment power.
 
(2)      Includes all shares which the named individual has the right to acquire under all vested and unvested options and warrants granted to such individual under the Company's option plan.
 
(3)      This information is based on 182,947,985 226,597,702 common shares outstanding as of February 28, 2011.29, 2012.

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ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.MAJOR SHAREHOLDERS

Kris Sammy a registered individual portfolio manager with Canaccord Wealth Management previously with Dundee Securities Corporation, beneficially owns and/or exercises control or direction over 19,613,059“Nil” (2010-19,613,059, and 2009-19,296,247) common shares and warrants, representing a total of 10.72 percent‘Nil” (2010-10.72 and 2009-10.9 percents respectively) of the February 29, 2012 and outstanding common shares of Northcore Technologies Inc. assuming full exercise of his convertible securities.
 
This information is based on our records, information provided to us by directors and executive officers and a review of information, including press releases filed by our shareholders with the Ontario Securities Commission prior to February 28, 2011,29, 2012, and insider reports filed with the Ontario Securities Commission.  The Company’s major shareholders do not have any voting rights that differ from the rights of our other shareholders.
 
As at February 28, 201129, 2012 the shareholders of record held 182,947,985226,597,702 common shares.
 
WE ARE NOT AWARE OF ANY OTHER CORPORATION, FOREIGN GOVERNMENT, OR OTHER PERSON OR ENTITY THAT DIRECTLY OR INDIRECTLY OWN OR CONTROLS OUR COMPANY, SEVERALLY OR JOINTLY. WE ARE NOT AWARE OF ANY ARRANGEMENTS, WHICH MAY AT A LATER DATE RESULT IN A CHANGE IN CONTROL OF OUR COMPANY.
 
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B.RELATEDB. RELATED PARTY TRANSACTIONS

During the year ended December 31, 2011, interest payments relating to the secured subordinated notes totaling $1,000 (2010 - $1,000) were made to related parties.

During the year ended December 31, 2010, interest payments relating to the secured subordinated notes totaling $1,000 (2009 - $45,000) were made to related parties.

On July 9, 2010, Chris Bulger, Chairman of the Board exercised 133,000 Series I warrants at an exercise price of $0.20 per warrant, for total proceeds of $27,000.

On May 31, 2009, Duncan Copeland, Chief Executive Officer and a director of the Company converted $60,000 of Series I notes into 400,000 equity units at a price of $0.15 per unit.  Each unit is comprised of one common share and one share-purchase warrant with an exercise price of $0.20 and an expiry date of September 12, 2010.

Also on May 31, 2009, Jim Moskos, Chief Operating Officer and a director of the Company converted the following:  $10,000 of Series K notes into 83,000 common shares at a conversion price of $0.12 per share, $13,000 of Series J notes into 83,000 common shares at a conversion price of $0.15 per share, and $10,000 of Series I notes into 67,000 equity units at a price of $0.15 per unit.  Each unit is comprised of one common share and one share-purchase warrant with an exercise price of $0.20 and an expiry date of September 12, 2010.

Also on May 31, 2009, Chris Bulger, Chairman of the Board converted the following:  $56,000 of Series J notes into 375,000 common shares at a conversion price of $0.15 per share and $20,000 of Series I notes into 133,000 equity units at a price of $0.15 per unit.  Each unit is comprised of one common share and one share-purchase warrant with an exercise price of $0.20 and an expiry date of September 12, 2010.

ITEM 8 - FINANCIAL INFORMATION

CONSOLIDATED FINANCIAL STATEMENTS

See “Item 18 - Financial Statements” and the Consolidated Financial Statements and notes thereto accompanying this Annual Report beginning on page F-1.as an exhibit 15.1. All contingencies and commitments set out in the Financial Statements have been reviewed and updated as at the date of filing this Annual Report.
 

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LEGAL PROCEEDINGS
 
Neither we, nor any of our subsidiaries, is a party to, or the subject of, any material legal proceedings.
 
DIVIDEND POLICY
 
We have not declared or paid any cash dividends on our common shares.  We currently intend to retain any future earnings for use in the operation and expansion of our business.  We do not anticipate paying any cash dividends on our common shares in the foreseeable future.
 
We have not issued any preferred shares. The dividend entitlement of any preferred shares issued will be determined by our Board of Directors.
 
SIGNIFICANT CHANGES
 
Except as otherwise disclosed in this report, there has been no significant change in our financial position since December 31, 2010.2011.
 
ITEM 9 - THE OFFER AND LISTING
 
Our common shares are listed on The Toronto Stock Exchange and are quoted for trading on the OTCBB.  The Company’s stock symbols are NTI on the TSX and NTLNF on the OTCBB.
 
For additional information about the trading of our common shares, see Item 3-D - Risk Factors - YOUR ABILITY TO BUY OR SELL OUR COMMON SHARES ON THE OTCBB MAY BE LIMITED.
 
The following tables set forth the range of high and low sales prices (rounded to the nearest hundredth) as reported by The Toronto Stock Exchange and the OTCBB during the calendar years and quarters indicated.
 

 
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THE TORONTO STOCK EXCHANGE- (TSX)
 
HighLowHighLow
(Cdn $)(Cdn $)(Cdn $)(Cdn $)
ANNUAL MARKET PRICES    
    
2006 Calendar Year0.250.13
2007 Calendar Year0.200.070.200.07
2008 Calendar Year0.150.040.150.04
2009 Calendar Year0.330.100.330.10
2010 Calendar Year0.250.070.250.07
2011 Calendar Year0.480.09
    
QUARTERLY MARKET PRICES    
  
  
2009 CALENDAR YEAR  
First Quarter0.260.15
Second Quarter0.230.10
Third Quarter0.260.12
Fourth Quarter0.330.17
    
2010 CALENDAR YEAR    
First Quarter0.250.200.250.20
Second Quarter0.250.150.250.15
Third Quarter0.220.150.220.15
Fourth Quarter0.250.070.250.07
    
2011 CALENDAR YEAR  
First Quarter0.340.09
Second Quarter0.480.14
Third Quarter0.320.16
Fourth Quarter0.200.11
  
    
MONTHLY MARKET PRICES    
September 20100.190.15
October 20100.160.13
November 20100.150.07
December 20100.130.08
January 20110.180.09
February 20110.350.16
  
September 20110.260.16
October 20110.200.14
November 20110.200.12
December 20110.160.11
January 20120.140.08
February 20120.110.07
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OVER-THE-COUNTER BULLETIN BOARD –(OTCBB)
 HighLow
 (U.S. $)(U.S. $)
ANNUAL MARKET PRICES  
   
 2007 Calendar Year0.200.06
 2007 Calendar Year0.200.06
 2008 Calendar Year0.150.03
 2009 Calendar Year0.300.05
 2011 Calendar Year0.500.05
   
QUARTERLY MARKET PRICES  
   
   
2010 CALENDAR YEAR  
First Quarter0.250.11
Second Quarter0.240.10
Third Quarter0.210.13
Fourth Quarter0.150.07
   
2011 CALENDAR YEAR  
First Quarter0.330.08
Second Quarter0.500.13
Third Quarter0.300.15
Fourth Quarter0.180.05
   
   
MONTHLY MARKET PRICES  
September 20110.300.15
October 20110.180.11
November 20110.160.11
December 20110.150.05
January 20120.110.08
February 20120.080.06
 
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OVER-THE-COUNTER BULLETIN BOARD –(OTCBB)
 HighLow
 (U.S. $)(U.S. $)
ANNUAL MARKET PRICES  
   
    2006 Calendar Year0.270.10
2007 Calendar Year0.200.06
2008 Calendar Year0.150.03
2009 Calendar Year0.300.05
2010 Calendar Year0.250.07
   
QUARTERLY MARKET PRICES  
   
   
2009 CALENDAR YEAR  
First Quarter0.290.05
Second Quarter0.230.07
Third Quarter0.240.08
Fourth Quarter0.300.14
   
2010 CALENDAR YEAR  
First Quarter0.250.11
Second Quarter0.240.10
Third Quarter0.210.13
Fourth Quarter0.150.07
   
   
MONTHLY MARKET PRICES  
September 20100.170.13
October 20100.150.13
November 20100.140.10
December 20100.120.07
January 20110.170.08
February 20110.340.16
   
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ITEM 10 - ADDITIONAL INFORMATION
 
A.Share Capital
 
Not applicable.
 
B.Memorandum and Articles of Association
 
The Articles of Arrangement for the Company are on file with the Ministry of Consumer and Commercial Relations for the Province of Ontario under Ontario Corporation Number 1539169.  Our articles do not include a stated purpose.
 
Directors
 
Directors of our Company need not be shareholders.  In accordance with our by-laws and the Business Corporations Act (Ontario), a majority of our directors must be residents of Canada, subject to certain exceptions.  In addition, directors must be at least 18 years of age, of sound mind, and not bankrupt.  Neither our articles or by-laws, nor the Business Corporations Act (Ontario), impose any mandatory retirement age for directors.
 
A director who is a party to, or who is a director or officer of or has a material interest in any person who is a party to, a material contract or transaction or proposed material contract or transaction with our Company shall disclose to our Company the nature and extent of his interest at the time and in the manner provided by the Business Corporations Act (Ontario). The Business Corporations Act (Ontario) prohibits such a director from voting on any resolution to approve the contract or transaction unless the contract or transaction:

 ·Is an arrangement by way of security for money lent to or obligations undertaken by the director for the benefit of our Company or an affiliate;
 ·Relates primarily to his or her remuneration as a director, officer, employee or agent of our Company or an affiliate;
 ·Is for indemnity or insurance; or
 ·Is with an affiliate.

Our Board of Directors may, on behalf of our Company and without authorization of our shareholders:

 ·Borrow money upon the credit of our Company;
 ·Issue, reissue, sell or pledge bonds, debentures, notes or other evidences or indebtedness or guarantees of our Company, either secured or unsecured;
 ·
Subject to certain disclosure requirements of the Business Corporations Act (Ontario), give, directly or indirectly, financial assistance to any person by means of a loan, a guarantee or otherwise on behalf of our Company to secure performance or any present or future indebtedness, liability or obligation of any person; and
 ·Mortgage, hypothecate, pledge or otherwise create a security interest in all or any currently owned or subsequently acquired real or personal property of our Company, movable or immovable, including without limitation book debts, rights, powers, franchises and undertakings, to secure any bonds, debentures, notes or other evidences of indebtedness or guarantee or any other obligation of our Company.

Common Shares

Our articles authorize the issuance of an unlimited number of common shares. The holders of the common shares of our Company are entitled to receive notice of and to attend all meetings of the shareholders of our Company and have one vote for each common share held at all meetings of the shareholders of our Company, except for meetings at which only holders of another specified class or series of shares of our Company are entitled to vote separately as a class or series. Subject to the prior rights of the holders of preferred
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shares of our Company and to any other shares ranking senior to the common shares with respect to priority in the payment of dividends, the holders of common shares are entitled to receive dividends and our Company will pay dividends, as and when declared by our Board of Directors, out of moneys properly

52

applicable to the payment of dividends, in such amount and in such form as our Board of Directors may from time to time determine, and all dividends which our Board of Directors may declare on the common shares shall be declared and paid in equal amounts per share on all common shares at the time outstanding. In the event of the dissolution, liquidation or winding-up of our Company, whether voluntary or involuntary, or any other distribution of assets of our Company among its shareholders for the purpose of winding up its affairs, subject to the prior rights of the holders of preferred shares and to any other shares ranking senior to the common shares with respect to priority in the distribution of assets upon dissolution, liquidation or winding-up, the holders of the common shares will be entitled to receive the remaining property and assets of our Company.   There are no redemption or sinking-fund provisions that attach to the common shares, nor are there any provisions that discriminate against existing or prospective holders of common shares as a result of owning a substantial number of shares.  The holders of our common shares are not liable to further capital calls by our Company.

Preferred Shares

Our articles of incorporation authorize the issuance of an unlimited number of preferred shares, in one or more series. The Ontario Business Corporations Act does not impose restrictions upon our Board of Directors issuing preferred shares of the type authorized by our articles of incorporation. Our Board of Directors may fix, before issuing, the number of preferred shares of each series, the designation, rights, privileges, restrictions and conditions attaching to the preferred shares of each series, including any voting rights, any right to receive dividends (which may be cumulative or non-cumulative and variable or fixed) or the means of determining the dividends, the dates of payment, any terms and conditions of redemption or purchase, any conversion rights, and any rights on the liquidation, dissolution or winding-up of our Company, any sinking fund or other provisions, the whole to be subject to the issue of a Certificate of Amendment setting forth the designation, rights, privileges, restrictions and conditions attaching to the preferred shares of the series. Our articles of incorporation require that preferred shares of each series must, with respect to the payment of dividends and the distribution of assets or the return of capital in the event of the liquidation, dissolution or winding-up of our Company, whether voluntary or involuntary, rank on a parity with the preferred shares of every other series and be entitled to preference over the common shares and over any other shares ranking junior to the preferred shares. The preferred shares of one series shall participate ratably with the preferred shares of every other series in respect of all dividends and similar amounts.  The holders of our preferred shares are not liable to further capital calls by our Company.  None of our preferred shares are currently issued or outstanding.

Action Necessary to Change the Rights of Shareholders

In order to change the rights of our shareholders, we would need to amend our articles of incorporation to effect the change.  Such an amendment would require the approval of holders of two-thirds of the shares cast at a duly called special meeting. If we wish to amend the rights of holders of a specific class of shares, such approval would also be required from the holders of that class. A shareholder is entitled to dissent in respect of such a resolution and, if the resolution is adopted and our Company implements such changes, demand payment of the fair value of its shares.

Meetings of Shareholders

An annual meeting of shareholders is held each year for the purpose of considering the financial statements and reports, electing directors, appointing auditors and for the transaction of other business as may be brought before the meeting. The Chief Executive, the Chairman of the Board or the Board of Directors has the power to call a special meeting of shareholders at any time. Notice of the time and place of each meeting of shareholders must be given not less than 21 days, nor more than 50 days, before the date of each meeting to each director, to the auditor and to each shareholder who at the close of business on the record date for notice is entered in the securities register as the holder of one or more shares carrying the right to vote at the meeting. Notice of a meeting of shareholders called for any other purpose other than consideration of financial statements and auditors’ report, election of directors and reappointment of the incumbent auditor, must state the nature of the business in sufficient detail to permit the shareholder to form a reasoned judgment on, and must state the text of, any special resolution or by-law to be submitted to the meeting. The only persons entitled to be present
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at a meeting of shareholders are those entitled to vote thereat, the directors of

53

our Company, the auditor of our Company and others who although not entitled to vote are entitled or required to be present at the meeting. Any other person may be admitted only on the invitation of the chairman of the meeting or with the consent of the meeting. If a corporation is winding-up, the Business Corporations Act (Ontario) permits a liquidator appointed by the shareholders, during the continuance of a voluntary winding-up, to call and attend meetings of the shareholders. In circumstances where a court orders a meeting of shareholders, the court may direct how the meeting may be held, including the parties entitled, or required, to attend the meeting.

Limitations on Rights to Own Securities
 
There is no limitation imposed by Canadian law or by the articles or other charter documents on the right of a non-resident to hold or vote common shares or preferred shares with voting rights, other than as provided in the Investment Canada Act, as amended by the World Trade Organization Agreement Implementation Act.  The Investment Canada Act generally prohibits implementation of a reviewable investment by an individual, government or agency thereof, corporation, partnership, trust or joint venture that is not a “Canadian,” as defined in the Investment Canada Act (a “non-Canadian”), unless, after review, the minister responsible for the Investment Act is satisfied that the investment is likely to be a net benefit to Canada.
 
An investment in our voting shares by a non-Canadian (other than a “World Trade Organization Investor,” as defined below) would be reviewable under the Investment Canada Act if it were an investment to acquire direct control of our Company, and the value of our assets were $5.0 million or more.  An investment in our voting shares by a World Trade Organization Investor would be reviewable under the Investment Canada Act if it were an investment to acquire direct control of our Company, and the value of our assets equaled or exceeded $209 million.  A non-Canadian, whether a World Trade Organization Investor or otherwise, would acquire control of us for purposes of the Investment Canada Act if he or she acquired a majority of our voting shares.  The acquisition of less than a majority, but at least one-third of our voting shares, would be presumed to be an acquisition of control of our Company, unless it could be established that we were not controlled in fact by the acquirer through the ownership of voting shares.  In general, an individual is a World Trade Organization Investor if he or she is a “national” of a country (other than Canada) that is a member of the World Trade Organization (“World Trade Organization Member”) or has a right of permanent residence in a World Trade Organization Member.  A corporation or other entity will be a World Trade Organization investor if it is a “World Trade Organization investor-controlled entity” pursuant to detailed rules set out in the Investment Canada Act.  The United States is a World Trade Organization Member.
 
Certain transactions involving our voting shares would be exempt from the Investment Canada Act, including:  (a) an acquisition of our voting shares if the acquisition were made in connection with the person’s business as a trader or dealer in securities; (b) an acquisition of control of our Company in connection with the realization of a security interest granted for a loan or other financial assistance and not for any purpose related to the provisions of the Investment Canada Act; and (c) an acquisition of control of our Company by reason of an amalgamation, merger, consolidation or corporate reorganization, following which the ultimate direct or indirect control in fact of our Company, through the ownership of voting interests, remains unchanged.
 
Change of Control

Our authorized capital consists of an unlimited number of common shares and an unlimited number of preferred shares. The Board of Directors, without any further vote by the common shareholders, has the authority to issue preferred shares and to determine the price, preferences, rights and restrictions, including voting and dividend rights, of these shares. The rights of the holders of common shares are subject to the rights of holders of any preferred shares that the Board of Directors may issue in the future. That means, for example, that we can issue preferred shares with more voting rights, higher dividend payments or more favorable rights upon dissolution, than the common shares. If we issued certain types of preferred shares in the future, it may also be more difficult for a third-party to acquire a majority of our outstanding voting shares.

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Our articles do not contain any provisions that govern the ownership threshold above which shareholder ownership must be disclosed.
 
53
C.    Material Contracts
 
The following is a summary of our Company’s material contracts entered into within the last three years.
 
1.EQUITY PRIVATE PLACEMENT: On February 14, 2011, the Company completed a transaction resulting in the issuance of 10,478,000 equity units, priced at $0.08 per unit, for gross proceeds of $838,000 and net proceeds of $713,000 after deducting financing costs of $125,000.  Each unit consists of one common share and one share-purchase warrant.  Each warrant may be converted into a common share at the exercise price of $0.12 at any time prior to February 14, 2013.

In addition to the above financing costs, the Company issued 2,250,000 compensation options to the financing agent, Saratoga Finance Inc.  The options entitled the holder to purchase up to 2,250,000 equity units at a purchase price of $0.08 per unit, at any time prior to February 14, 2013.  Each equity unit consisted of one common share and one warrant.  Each warrant may be converted into a common share at an exercise price of $0.12, at any time prior to February 14, 2013. These compensation options were exercised during 2011, resulting in gross proceeds of $180,000.

2.CONVERSION OF NOTES AND EXERCISING OF WARRANTS: During the year ended December 31, 2011, Series I and L note holders, along with warrant holders from equity private placements in 2010 and 2011, exercised 26,260,000 common share-purchase warrants for total proceeds of $3,377,000.

3.
EQUITY PRIVATE PLACEMENT: On December 22, 2010, the Company completed a transaction resulting in the issuance of 7,816,000 equity units, priced at $0.08 per unit, for net proceeds of $625,000.  Each unit consists of one common share and one common share purchase warrant.  Each full warrant may be converted into a common share at the exercise price of $0.12 at any time prior to December 22, 2012. Subsequent to the year ended December 31, 2010, the Company completed a transaction resulting in the issuance of 10,478,000 equity units, priced at $0.08 per unit for net proceeds of $729,00.

2.4.OPERATING LOAN: On October 28, 2010, the Company received an operating loan from a private institution in the amount of $500,000.  The loan bears interest at 18.75 percent, matures in six months from the closing date and is secured by a general security agreement and common shares pledged by certain shareholders of the Company.  The balance outstanding as at December 31, 2010 is $500,000.

3.5.
EQUITY LINE OF CREDIT: On June 16, 2010, the Company entered into an agreement with GEM Global Yield Fund Limited (“GEM”) for a $6,000,000 equity line of credit.  The Company will control the timing and maximum amount of any draw downs under this facility, and has the right, not the obligation, to draw down on available funds by requiring GEM to subscribe for the Company’s common shares at a 10 percent discount to the average closing price of the Company’s common shares over a 15 day trading period following the draw down notice date, provided that the Company’s share price during the notice period is greater than the floor price of $0.17 per share as defined in the agreement.  GEM will hold freely trading shares of the Company through a share lending facility provided by a current shareholder.  As part of the equity credit line transaction, the Company has agreed to issue 6,000,000 warrants to GEM. The warrants are exercisable for a period of three years from the closing notice date at an exercise price of $0.27 per share.  The warrants are not issuable until the first draw down of funds have occurred.

On August 9, 2010, the Company closed an equity transaction with GEM, securing gross proceeds of $383,000 and net cash proceeds of $300,000 after deducting legal fees and one half of the commitment fee of $90,000.  In connection with the transaction, the Company issued 2,191,000 common shares and 6,000,000 share-purchase warrants with an exercise price of $0.27 and an expiry date of August 9, 2013.

4.6.
INTELLECTUAL PROPERTY: During the year ended December 31, 2009, the Company entered into a technology licensing agreement with a Fortune 500 company that provides Northcore with access to a portfolio of intellectually property patents over a six-year period for a minimum fee of US $260,000 over the term of the agreement.

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5.7.EQUITY PRIVATE PLACEMENT: On September 30, 2009, the Company completed a transaction resulting in the issuance of 2,604,000 equity units, priced at $0.19 per unit, for net proceeds of $495,000.  Each unit consists of one common share and one-half common share purchase warrant.  Each full warrant may be converted into a common share at the exercise price of $0.25 at any time prior to September 30, 2011.

6.SERIES N NOTES: On December 12, 2008, the Company completed a transaction resulting in the issuance of Series N secured subordinated notes with a face value of $600,000.  The Series N notes mature on December 12, 2011, have an annual interest rate of 10 percent and are convertible into equity units at a price of $0.10 per unit.  Interest is payable in cash upon the earlier of each quarter end, conversion, or maturity of the notes.   Each equity unit consists of one common share and one

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share-purchase warrant with an exercise price of $0.15 per warrant.  The warrants expire on December 12, 2011.  Dundee Securities Corporation received a brokerage commission of four percent on a portion of the private placement.  The afore-mentioned conversion provisions are subject to a four month and one day hold period.  The Series N notes are secured by a general security agreement on the assets of the Company, subordinated to the security claims provided to the holders of previously issued notes.

7.SERIES M NOTES: On July 11, 2008, the Company completed a transaction resulting in the issuance of Series M secured subordinated notes with a face value of $678,000.  The Series M notes mature on July 11, 2013, have an annual interest rate of 10 percent and are convertible into equity units at a price of $0.05 per unit.  Interest is payable in cash upon the earlier of conversion or maturity of the notes.   Each equity unit consists of one common share and one share-purchase warrant with an exercise price of $0.10 per warrant.  The warrants expire on the earlier of (i) July 11, 2013 and (ii) the date which is twenty days following the issuance of a notice by the Company to holders confirming that the closing price of the Company’s common shares on the Toronto Stock Exchange, was greater than or equal to $0.20 for the preceding 10 consecutive trading days.  Dundee Securities Corporation received a brokerage commission of four percent on a portion of the private placement.  The afore-mentioned conversion provisions are subject to a four month and one day hold period.  The Series M notes are secured by a general security agreement on the assets of the Company, subordinated to the security claims provided to the holders of previously issued notes.

During the year ended December 31, 2009, $678,000 (face value) of the Series M notes (book value of $127,000) were converted, resulting in the issuance of 13,560,000 common shares valued at $315,000 and 13,200,000 warrants valued at $240,000.  The remaining 360,000 warrant conversion features on the Series M notes, valued at $7,000, have expired as per the terms of the notes.

8.SERIES L NOTES: On March 31, 2008, the Company issued Series L secured subordinated notes with a face value of $525,000.  The Series L notes mature March 31, 2013, have an annual interest rate of 10 percent and are convertible into equity units at a price of $0.10 per unit.  Interest for the first two years is payable in shares upon the earlier of conversion or each anniversary date of the closing date.  Interest payable for the remaining term of the notes is payable in cash upon the earlier of conversion, each anniversary date of the closing date, or maturity.   Each equity unit consisted of one common share and one share-purchase warrant with an exercise price of $0.15 per warrant.  The warrants expire on the earlier of (i) March 31, 2013 and (ii) the date which is sixty days following the issuance of a notice by the Company to holders confirming that the closing price of the Company’s common shares, on the Toronto Stock Exchange, was greater than or equal to $0.36 for any 10 consecutive trading days.  Dundee Securities Corporation received a brokerage commission of four percent on a portion of the private placement.  The afore-mentioned conversion provisions are subject to a four month and one day holding period.  The Series L notes are secured by a general security agreement on the assets of the Company, subordinated to the security claims provided to the holders of previously issued notes.
 
D.           Exchange Controls
 
As of the date hereof, we are not aware of any law, government decree or regulation in Canada restricting the export or import of capital or affecting the remittance of dividends, interest or other payments to a non-resident holder of our common shares, other than withholding tax requirements.
 
E.           Taxation
 
The following summary describes material Canadian federal income tax consequences generally applicable to a holder of our common shares who is not a resident of Canada, and who, for purposes of the Income Tax Act (Canada), (i) holds such shares as capital property and (ii) deals at arm’s length with us.  Generally, common shares will be considered capital property to a holder provided that such holder does not hold such securities in the course of carrying on a business and has not acquired such securities in a transaction or transactions considered to be a concern in the nature of trade which includes a transaction or transactions of the same kind and carried on in the same manner as a transaction or transactions of an ordinary trader or dealer in property of the same kind.

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This summary is based upon the current provisions of the Income Tax Act and the regulations there under and on an understanding of the published administrative practices of the Canadian Customs and Revenue Agency. This summary does not take into account or anticipate any possible changes in law, or the administration thereof, whether by legislative, governmental or judicial action, except proposals for specific amendment thereto which have been publicly announced by the Canadian Minister of Finance prior to the date hereof.
 
This summary does not address all aspects of Canadian federal income tax law that may be relevant to shareholders based upon their particular circumstances, and does not deal with provincial, territorial or foreign income tax consequences, which might differ significantly from the consequences under Canadian federal income tax law.
 
Shareholders are advised to consult their tax advisors regarding the application of the Canadian federal income tax law to their particular circumstances, as well as any Canadian provincial, territorial or other tax consequences or any U.S. federal, state or local tax consequences or other foreign income tax consequences of the acquisition, ownership and disposition of our common shares.
 
Taxation of Dividends
 
A holder of a common share who is not resident in Canada for purposes of the Income Tax Act will be subject to Canadian withholding tax on dividends paid or credited, or deemed under the Income Tax Act to be paid or credited, to the holder of the common share. The rate of withholding tax under the Income Tax Act on dividends is 25 percent of the amount of the dividend. Such rate may be reduced under the provisions of an applicable international tax treaty to which Canada is a party. Under the tax treaty that Canada has entered into with the United States, the rate of Canadian withholding tax applicable in respect of dividends paid or credited by a Canadian corporation to a shareholder resident in the United States, is generally reduced to 15 percent, or 5 percent in the case of a corporate holder which owns 10 percent or more of the voting shares. A foreign tax credit for the tax withheld may be available under applicable US tax law to a US holder against U.S. federal income tax liability.  Moreover, pursuant to Article XXI of the Canada-U.S. Treaty, an exemption from
Canadian withholding tax generally is available in respect of dividends received by certain trusts, companies and other organizations whose income is exempt from tax under the laws of the United States.
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Disposition of Common Shares
 
A non-resident holder of a common share will not be subject to tax under the Income Tax Act in respect of a capital gain realized on the disposition of a common share unless the common share constitutes or is deemed to constitute “taxable Canadian property” as defined in the Income Tax Act. Shares of a corporation that are listed on a prescribed stock exchange (which includes shares traded on certain U.S. stock exchanges, including the Nasdaq National Market), are generally not considered to be taxable Canadian property. However, such shares are considered taxable Canadian property in the hands of a non-resident holder if, at any time during the 60-month period immediately preceding disposition by the holder, 25 percent or more of our issued shares of any class were owned by the non-resident holder together with persons with whom the non-resident did not deal at arm’s length.
 
An interest in or option in respect of common shares or other securities convertible into or exchangeable for common shares could constitute taxable Canadian property if the common shares that could be acquired upon the exercise of the option, the conversion or exchange rights or in which there is such interest are themselves taxable Canadian property.  Taxable Canadian property also includes any common share held by a non-resident if the non-resident used the common share in carrying on a business (other than an insurance business) in Canada, or, if the non-resident is a non-resident insurer, any common share that is its “designated insurance property” for the year. A non-resident whose common shares constitute or are deemed to constitute taxable Canadian property will realize upon the disposition or deemed disposition of a common share, a capital gain (or a capital loss) to the extent that the proceeds of disposition are greater than (or less than) the aggregate of the adjusted cost base to the holder of a common share and any reasonable costs of disposition.

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One-half of any capital gain realized by a holder (a taxable capital gain) will be included in computing the holder’s income. One-half of any capital loss realized by a holder may, subject to certain restrictions applicable to holders that are corporations, normally be deducted from the holder’s taxable capital gains realized in the year of disposition, the three preceding taxation years or any subsequent taxation years, subject to detailed rules contained in the Income Tax Act.
 
A purchase by us of our common shares (other than a purchase of our common shares on the open market in a manner in which shares would normally be purchased by any member of the public in the open market) will give rise to a deemed dividend under the Income Tax Act equal to the difference between the amount we paid on the purchase and the paid-up capital of such shares determined in accordance with the Income Tax Act. The paid-up capital of such shares may be less than the cost of such shares to the holder. Any such dividend deemed to have been received by a non-resident holder will be subject to non-resident withholding tax as described above. The amount of any such deemed dividend will reduce the proceeds of disposition of the common share to the non-resident holder for the purpose of computing the amount of the non-resident holder’s capital gain or loss under the Income Tax Act.
 
Even if the common shares constitute taxable Canadian property to a non-resident holder and their disposition would give rise to a capital gain, an exemption from tax under the Income Tax Act may be available under the terms of an applicable international tax treaty to which Canada is a party. A holder resident in the United States for purposes of the Canada-U.S. Treaty will generally be exempt from Canadian tax in respect of a gain on the disposition of common shares provided that the value of the common shares is not derived principally from real property situated in Canada. Our common shares would qualify for this exemption, however Article XIII paragraph 5 of the Canada-U.S. Treaty provides that the treaty exemption does not apply where the U.S. resident holder was an individual who was a Canadian resident for 120 months during any period of 20 consecutive years preceding the time of the sale and was resident in Canada at any time during the ten years immediately preceding the sale and owned the shares at the time he/she ceased to be resident in Canada. If the exemption from such Canadian tax in respect of such gain is not available under the Canada-U.S. Treaty, a foreign tax credit may be available under applicable US tax law for U.S. federal income tax purposes. Non-residents are advised to consult their tax advisers with regard to the availability of a treaty exemption.

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U.S. Federal Income Tax Considerations

The following summary describes certain material United States federal income tax consequences arising to U.S. Holders (as defined below) from the purchase, ownership and sale of common shares. This summary is based on the provisions of the Internal Revenue Code of 1986, as amended, final, temporary and proposed United States Treasury Regulations, revenue rulings and administrative pronouncements of the Internal Revenue Service, and court decisions, all as in effect as of the date of this Annual Report and all of which are subject to change, possibly on a retroactive basis.
 
This summary does not address the considerations that may be applicable to any particular U.S. Holder based on such U.S. Holder's particular circumstances nor to particular classes of shareholders (including but not limited to financial institutions, broker-dealers, insurance companies, real estate investment trusts, regulated investment companies, persons who have elected mark-to-market accounting, tax-exempt organizations, persons who hold ordinary shares as part of a straddle, "hedge" or "conversion transaction" with other investments, persons who own (directly, indirectly or through attribution) 10 percent or more of our Company's outstanding voting shares, persons whose functional currency is not the U.S. dollar, persons who are not citizens or residents of the United States, foreign corporations, foreign partnerships or foreign estates or trusts, or persons who acquired their common shares pursuant to the exercise of employee stock options or rights or otherwise as compensation). Additionally, the discussion does not consider the tax treatment of persons who hold common shares through a partnership or other pass-through entity.  The summary does not discuss United States federal alternative minimum tax; foreign, state, or local taxes; nor the possible application of United States federal non-income taxes (e.g., gift or estate tax).  This summary considers only U.S. Holders that will own their common shares as capital assets.
 
This summary is addressed only to a holder of common shares who is (i) a citizen or resident of the United States, as defined under United States tax laws, (ii) the trust was in existence on August 20, 1996 and

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a corporation organized in the United States or under the laws of the United States or any state thereof, (iii) an estate, the income of which is includable in gross income for United States federal income tax purposes regardless of source, or (iv) a trust, if (1) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) the trust has a valid election in effect under applicable United States Treasury Regulations to be treated as a U.S. person (each, a "U.S. Holder"). This summary is for general information purposes only and does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase common shares.
 
Each shareholder should consult with such shareholder's own tax advisor as to the particular tax consequences to such shareholder of the purchase, ownership and sale of their common shares, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.
 
Circular 230 Disclosure

Any tax statement made herein regarding any U.S. federal tax is not intended or written to be used, and cannot be used, by any taxpayer for purposes of avoiding any penalties.  Any such statement herein is written in connection with the marketing or promotion of the transaction to which the statement relates.  Each taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

Treatment of Dividend Distributions

Subject to the discussion below under "Tax Status Of The Company”, a distribution by our Company to a U.S. Holder in respect of the common shares (including the amount of any Canadian taxes withheld thereon) will generally be treated for United States federal income tax purposes as a dividend to the extent of our Company's current and accumulated earnings and profits, as determined under United States federal income tax principles. To the extent, if any, that the amount of any such distribution exceeds our Company's current and accumulated earnings and profits, as so computed, it will first reduce the U.S. Holder's tax basis in the common shares owned by him, and to the extent it exceeds such tax basis, it will be treated as capital gain from the sale of common shares.

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While it is not anticipated that our Company will pay dividends in the foreseeable future, the gross amount of any distribution from our Company received by a U.S. Holder which is treated as a dividend for United States federal income tax purposes (before reduction for any Canadian tax withheld at source) will be included in such U.S. Holder's gross income as ordinary income and generally will not qualify for the dividends received deduction applicable in certain cases to United States corporations. If you are an individual, dividends that we pay you through 2011 will be subject to tax at long-term capital gain rates, provided certain holding period and other requirements are satisfied and provided that in the year such dividends are paid, or any preceding taxable year, we are not a  controlled foreign corporation or a passive foreign investment company (as discussed below).

For United States federal income tax purposes, the amount of any dividend paid in Canadian dollars by our Company to a U.S. Holder will equal the U.S. dollar value of the amount of the dividend paid in Canadian dollars, at the exchange rate in effect on the date of the distribution, regardless of whether the Canadian dollars are actually converted into U.S. dollars at that time. Canadian dollars received by a U.S. Holder will have a tax basis equal to the U.S. dollar value thereof determined at the exchange rate on the date of the distribution. Currency exchange gain or loss, if any, recognized by a U.S. Holder on the conversion of Canadian dollars into U.S. dollars will generally be treated as U.S. source ordinary income or loss to such holder. U.S. Holders should consult their own tax advisors concerning the treatment of foreign currency gain or loss, if any, on any Canadian dollars received as a distribution.

A U.S. Holder generally will be entitled to deduct any Canadian taxes withheld from dividends in computing United States taxable income, or to credit such withheld taxes against the United States federal income tax imposed on such U.S. Holder's dividend income. No deduction for Canadian taxes may be claimed, however, by an individual (noncorporate) U.S. Holder that does not itemize deductions. The amount of foreign taxes for which a U.S. Holder may claim a credit in any year is subject to complex limitations and

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restrictions, which must be determined on an individual basis. Distributions with respect to common shares that are taxable as dividends will generally constitute foreign source income for purposes of the foreign tax credit limitation. The total amount of allowable foreign tax credits in any year generally cannot exceed regular U.S. tax liability for the year attributable to foreign source taxable income. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by our Company with respect to the common shares will generally constitute "passive income." Foreign income taxes exceeding a shareholder's credit limitation for the year of payment or accrual of such tax can be carried back for one taxable year and forward for ten taxable years, subject to the credit limitation applicable in each of such years.

Sale or Exchange of a Common Share

Subject to the discussion below under "Tax Status Of The Company", the sale or exchange by a U.S. Holder of a common share generally will result in the recognition of gain or loss by the U.S. Holder in an amount equal to the difference between the amount realized and the U.S. Holder's basis in the common share sold. Such gain or loss will be capital gain or loss provided that the common share is a capital asset in the hands of the holder. The gain or loss realized by an individual (non-corporate) U.S. Holder on the sale or exchange of a common share will be long-term capital gain or loss subject to a preferential rate of tax if the common share had been held for more than one year.  If the common share had been held by such individual U.S. Holder for not more than one year, such gain will be short-term capital gain. The deductibility of a capital loss recognized on the sale, exchange or other disposition of common shares is subject to limitations. A U.S. Holder that receives foreign currency upon disposition of common shares and subsequently converts the foreign currency into U.S. dollars generally will have foreign exchange gain or loss based on any appreciation or depreciation in the value of the foreign currency against the U.S. dollar. U.S. Holders should consult their own tax advisors regarding treatment of any foreign currency gain or loss on any Canadian dollars received in respect of the sale, exchange or other disposition of common shares.

Tax Status of the Company

Controlled Foreign Corporations.  A non-US company generally will be a “controlled foreign corporation” under Section 957 of the Internal Revenue Code (a “CFC”) if more than 50 percent of its total voting power or the total value of its outstanding shares is owned, directly or indirectly, by citizens or residents
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of the U.S., domestic partnerships, domestic corporations, domestic estates, or domestic trusts (each as defined in Section 7701(a)(30) of the Internal Revenue Code), each of which own, directly or indirectly, 10 percent or more of the total voting power of the outstanding shares of the company (a “10 percent Shareholder”).

If our Company is a CFC, a 10 percent Shareholder generally will be subject to current U.S. federal income tax with respect to (a) such 10 percent Shareholder’s pro rata share of the “subpart F income” (as defined in Section 952 of the Internal Revenue Code) of our Company and (b) such 10 percent Shareholder’s pro rata share of the earnings of our Company invested in “United States property” (as defined in Section 956 of the Internal Revenue Code).  In addition, under Section 1248 of the Internal Revenue Code, any gain recognized on the sale or other taxable disposition of the common shares by a U.S. Holder that was a 10 percent Shareholder at any time during the five-year period ending with such sale or other taxable disposition generally will be treated as a dividend to the extent of the “earnings and profits” of our Company that are attributable to such common shares.

The Company does not believe that it currently is a CFC.  However, there can be no assurances that our Company will not be a CFC for the current or any future taxable year.

Passive Foreign Investment Companies.  A non-U.S. company will be a passive foreign investment company if 75 percent or more of its gross income (including the pro rata share of the gross income of any company (United States or foreign) in which the company is considered to own 25 percent or more of the shares (determined by market value)) in a taxable year is passive income. Alternatively, the company will be considered to be a passive foreign investment company if at least 50 percent of the value of the company's assets (averaged over the year) (including the pro rata share of the value of the assets of any company in which the company is considered to own 25 percent or more of the shares (determined by market value)) in a

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taxable year are held for the production of, or produce, passive income. Passive income generally includes, among others, interest, dividends, royalties, rents and annuities.

If our Company is a passive foreign investment company for any taxable year, a U.S. Holder, in the absence of an election by such U.S. Holder to treat our Company as a "qualified electing fund" (a "QEF election"), as discussed below, would, upon certain distributions by our Company and upon disposition of the common shares at a gain, be liable to pay tax at the highest tax rate on ordinary income in effect for each period to which the income is allocated, plus interest on the tax, as if the distribution or gain had been recognized ratably over the days in the U.S. Holder's holding period for the common shares during which our Company was a passive foreign investment company. Additionally, if our Company is a passive foreign investment company, U.S. Holders who acquire shares from U.S. decedents would be denied the normally available step-up of the income tax basis for such common shares to fair market value at the date of death and instead would have a tax basis equal to the U.S. decedent's basis, if lower.

If our Company is treated as a passive foreign investment company for any taxable year, U.S. Holders should consider whether to make a QEF election for United States federal income tax purposes. If a U.S. Holder has a QEF election in effect for all taxable years that such U.S. Holder has held the common shares and our Company was a passive foreign investment company, distributions and gain will not be recognized ratably over the U.S. Holder's holding period or subject to an interest charge, gain on the sale of common shares will be characterized as capital gain and the denial of basis step-up at death described above would not apply. Instead, each such U.S. Holder is required for each taxable year that our Company is a qualified electing fund to include in income a pro rata share of the ordinary earnings of our Company as ordinary income and a pro rata share of the net capital gain of our Company as capital gain, subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge. In order to comply with the requirements of a QEF election, a U.S. Holder must receive from our Company certain information. We intend to supply U.S. Holders with the information needed to report income and gain pursuant to a QEF election in the event our Company is classified as a passive foreign investment company. The QEF election is made on a shareholder-by-shareholder basis and can be revoked only with the consent of the Internal Revenue Service.  A shareholder makes a QEF election by attaching a completed IRS Form 8621 (including the passive foreign investment company annual information statement) to a timely filed United States federal income tax return or, if not required to file United States Federal income tax return, by filing such form with the IRS Service Center listed on IRS Form 8621. Even if a QEF election is not made, a shareholder in a passive foreign investment company who is a U.S. Holder must file a completed IRS Form 8621 every year.

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As an alternative to making a QEF election, a U.S. Holder may elect to make a mark-to-market election with respect to the common shares owned by him if such stock qualifies as “marketable stock.” To qualify as “marketable stock,” the stock must be regularly traded on a qualified exchange.  Under applicable Treasury regulations, a “qualified exchange” includes a national securities exchange that is registered with the SEC or the national market system established under the Securities Exchange Act of 1934 and certain foreign securities exchanges.  Under applicable Treasury Regulations, PFIC stock traded on a qualified exchange is regularly traded on such exchange for any calendar year during which such stock is traded, other than in de minimis quantities, on at least 15 days during each calendar quarter.  We cannot assure U.S. Holders that our common shares will be treated as regularly traded stock on a qualified exchange. If the mark-to-market election were made, then the rules set forth above would not apply for periods covered by the election. Under such election, a U.S. Holder includes in income each year an amount equal to fair market value of the common shares owned by such U.S. Holder as of the close of the taxable year over the U.S. Holder's adjusted basis in such shares. The U.S. Holder would be entitled to a deduction for the excess, if any, of such U.S. Holder's adjusted basis in his common shares over the fair market value of such shares as of the close of the taxable year; provided, however, that such deduction would be limited to the extent of any net mark-to-market gains with respect to the common shares included by the U.S. Holder under the election for prior taxable years. The U.S. Holder's basis in his common shares is adjusted to reflect the amounts included or deducted pursuant to this election. Amounts included in income pursuant to the mark-to-market election, as well as gain on the sale or exchange of the common shares, will be treated as ordinary income. Ordinary loss treatment applies to the deductible portion of any mark-to-market loss, as well as to any loss realized on the actual sale or exchange of the common shares to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included with respect to such common shares. The mark-to-market

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election applies to the tax year for which the election is made and all later tax years, unless the common shares cease to be marketable or the IRS consents to the revocation of the election.

We have not determined whether our Company may have been a passive foreign investment company during 2009.2011. There can be no assurance that our Company will not be classified as a passive foreign investment company in 2010,2012, or thereafter, because the tests for determining passive foreign investment company status are applied annually and it is difficult to make accurate predictions of future income and assets, which are relevant to this determination. U.S. Holders who hold common shares during a period when our Company is a passive foreign investment company will be subject to the foregoing rules, even if our Company ceases to be a passive foreign investment company, subject to certain exceptions for U.S. Holders who made a QEF election or mark-to-market election. U.S. Holders are urged to consult with their own tax advisors about making a QEF election or mark-to-market election and other aspects of the passive foreign investment company rules.

Back-Up Withholding and Information Reporting

U.S. Holders generally are subject to information reporting requirements and back-up withholding with respect to dividends paid on common shares, or proceeds paid from the disposition of common shares, unless the U.S. Holder provides an IRS Form W-9 or otherwise establishes an exemption.

The amount of any back-up withholding will be allowed as a credit against a U.S. Holder’s federal income tax liability and may entitle such holder to a refund, provided that certain required information is furnished to the IRS.
 
F.           Dividends and Paying Agents
 
Not applicable.
 
G.Statements by Experts
 
Not applicable.
 
H.
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H.           Documents on Display
 
We have filed this Annual Report on Form 20-F with the Securities and Exchange Commission under the Securities Exchange Act of 1934. Statements made in this Annual Report as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to this Annual Report, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference.
 
We are subject to the informational requirements of the Exchange Act and file reports and other information with the Securities and Exchange Commission.  Reports and other information which we file with the Securities and Exchange Commission, including this Annual Report on Form 20-F, may be inspected and copied at the public reference facilities of the Securities and Exchange Commission at:
 
100F Street, N.E
Washington D.C.  20549
 
You can also obtain copies of this material by mail from the Public Reference Section of the Securities and Exchange Commission, 100F Street, N.E., Washington, D.C. 20549, at prescribed rates.  Additionally, copies of this material may also be obtained from the Securities and Exchange Commission’s Internet site at http://www.sec.gov.  The Commission’s telephone number is 1-800-SEC-0330.
 
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I.             
I.Subsidiary Information
 
Not applicable.
 
ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK  
 
Not applicable.

ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

ITEM 13 - DEFAULT, DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.

ITEM 14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Not applicable.

ITEM 15 – CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES
 
The Company has evaluated, under the supervision and with the participation of the management, including our Chief Executive Officer and our Chief Operating Officer, our disclosure controls and procedures as of December 31, 20102011 pursuant to Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended. Based on this evaluation, these Officers have concluded that Company’s disclosure controls and procedures as of such date were effective to provide reasonable assurance that information required to be disclosed by the
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Company in this report we file or submit under the Securities Exchange Act of 1934, as amended, (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Operating Officer, as appropriate to allow timely decisions regarding required disclosure.

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting.

The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the Chief Executive Officer and Chief Operating Officer, or persons performing similar functions, and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 ·
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the assets of the Company;
 ·Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and

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 ·Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the design and operating effectiveness of the Company’s internal control over financial reporting as of December 31, 2010.2011.  In making this assessment, management used the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  Based on this assessment, management believes that, as of December 31, 2010,2011, the Company’s internal control over financial reporting was effective.

Management is aware that there is a lack of segregation of duties due to the small number of employees dealing with general, administrative and financial matters.  However, management has decided that considering the employees involved and the compensating control procedures in place, including substantive periodic review of financial statements by the Audit Committee to ensure that internal controls over financial reporting and disclosure controls and procedures are effective, the risks associated with segregation are insignificant and the potential benefits of adding employees to more clearly segregate duties do not justify the expenses associated with such increase.

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There has been no changes in the Company's internal controls over financial reporting during the year ended December 31, 2010,2011, that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting.
 
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ITEM 16 – [RESERVED]

ITEM 16A – AUDIT COMMITTEE FINANCIAL EXPERT

The Company’s Board of Directors has determined that it has at least one audit committee financial expert serving on its audit committee.  The Board of Directors has determined that Darroch Robertson and Christopher Bulger areis audit committee financial expert.

ITEM 16B – CODE OF ETHICS

The Company has adopted a Code of Business Conduct and Ethics that applies to all directors, officers and employees. The Code of Business Conduct and Ethics is attached as an exhibit to this report. We did not amend, modify or grant any waiver from any provision of our Code of Business Conduct and Ethics during the last fiscal year.

ITEM 16C – PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth the aggregate fees billed for each of the last two fiscal years for professional services rendered by our auditors for the audit of our annual financial statements and other services.


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FEES OF AUDITORS

The aggregate audit fees billed by Collins Barrow Toronto LLP, & KPMG LLP, for the years ended December 31, 2010,2011, and 2009,2010, are set out in the table below:

Year 
Audit Fees(1)
  
Tax Fees(2)
 
Audit Fees(1)
Tax Fees(2)
2010 $114,000  $3,000 
2011$98,000$3,300
2009 $173,000  $3,000 $57,000$3,000

 (1)Audit fees represent costs associated with the audit of the Company’s annual consolidated financial statements including review of securities filings and review of the Company’s interim consolidated financial statements. The 2010 audit fees included $57,000 paid to KPMG and $57,000 paid to Collins Barrow. Fees for 2009 was paid to KPMG only. There were no other audit related fee or other fee paid to the auditors.

 (2)Tax fees paid to KPMG, represent costs associated with the preparation of the Company’s annual tax filings, tax planning and advice.

Before the Company’s auditor is engaged by the Company to render audit or non-audit services, the engagement is approved by the Audit Committee.  Audit and non-audit services provided by the Company’s auditor were pre-approved by the Audit Committee pursuant to the Audit Committee’s pre-approval policy.

ITEM 16D – EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM 16E – PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

During the last fiscal year, there were no purchases by or on behalf of the Company or any affiliated purchaser of any class of the Company’s equity securities registered under Section 12 of the Securities Exchange Act.
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PART III

ITEM 17- FINANCIAL STATEMENTS

Not applicable.

ITEM 18 - FINANCIAL STATEMENTS

See the Index to Consolidated Financial Statements accompanying this report on page F-1.as an exhibit 15.1.

ITEM 19 - EXHIBITS

Exhibits filed as part of this Annual Report.

 1.1
Articles of Arrangement of the Company filed with the Ontario Ministry of Consumer and Business Services on October 31, 2002.(1)
 
 1.2
By-laws of the Company.(2)
 
 2.1Form of Convertible Secured Note.(6)
 
   2.2
Registration Rights Agreement, dated as of June 16, 2000, between Bid.Com International and Acqua Wellington Value Fund Ltd.(4)
 
 2.3
Form of Warrant issued or issuable upon exercise of Convertible Secured Notes.(6)
 
 4.1
Salary Protection Letter, dated February 12, 1997, between the Company and Jeffrey Lymburner.(3)

 
65

 4.2
Option Agreement dated February 19, 2001 between Bid.Com International Inc. and Wendell Willick.(5)
 
 4.3
Amendment to Option Agreement dated May 2, 2001 between Bid.Com International Inc. and Wendell Willick.(5)
 
 4.4
Board Support Agreement, dated as of September 7, 2001 between Bid.Com International Inc. and ADB Systemer ASA.(5)
 
 4.5
Board Representation Agreement, dated as of September 7, 2001 between Bid.Com International Inc. and LimeRock Partners LLC, Jan Pedersen, Sandnes Investering, Rogaland Investering, AIG Private Bank Ltd. and Karstein Gjersvik.(5)
 
 4.6
Employment Agreement, dated as of September 18, 2001 between Bid.Com International Inc. and Jan Pedersen.(5)
 
 4.7
Subscription Agreement, dated as of April 25, 2002, between ADB Systems International Inc. and Stonestreet Limited Partnership.(5)
 
 4.8
Arrangement Agreement, dated as of August 23, 2002, between ADB Systems International Inc. and ADB Systems International Ltd.(1)
 
 4.9
General Conveyance and Assumption Agreement, dated August 23, 2002, between ADB Systems International Inc. and ADB Systems International Ltd.(2)
 
 4.10
Loan Agreement, dated August 23, 2002, and Loan Agreement Amending Agreement entered into as of August 30, 2002 among The Brick Warehouse Corporation, ADB Systems International Inc. and ADB Systems International Ltd.(6)
 
 4.11
Form of Supply Services and Licensing Agreement, dated August 23, 2002, among The Brick Warehouse Corporation, ADB Systems International Inc., and ADB Systems International Ltd.(6)
 
 4.12
Form of General Security Agreement, dated as of April 30, 2002, between ADB Systems International Inc. and each of Stonestreet Limited Partnership and Greenwich Growth Fund Ltd.(6)
 
64
 4.13
Form of Subscription Agreement, dated August 30, 2002, between ADB Systems International Inc. and Stonestreet Limited Partnership.(6)
 
 4.14
Form of Subscription Agreement, dated August 30, 2002, between ADB Systems International Inc. and Greenwich Growth Fund Ltd.(6)
 
 4.15
Co-operation Agreement made as of August 23, 2002 between ADB Systems International Inc., ADB Systems International Ltd. and The Brick Warehouse Corporation.(6)
 
 4.16
Agency Agreement dated June 15, 2004 between ADB Systems International Ltd. and First Associates Investments Inc.(7)
 
 4.17
General Security Agreement dated as of May 19, 2004 between ADB Systems International Ltd. and Stonestreet Limited Partnership.(7)
 
 4.18
Form of Subscription Agreement between ADB Systems International Ltd. and First Associates Investments Inc.(7)
 
 4.19
Subscription Agreement dated May 19, 2004 between ADB Systems International Ltd. and Stonestreet Limited Partnership.(7)
 
 4.20
Form of Subscription Agreement for Equity Private PlacementsPlacement(8)
 
 4.21
Form of Subscription Agreement for Series I Convertible Secured Debenture. (11)
 
 4.22
Form of Series I Convertible Secured Debenture.(11)
 
 4.23
Form of Subscription Agreement for Series J Convertible Secured Debenture. (11)
 
 4.24
Form of Series J Convertible Secured Debenture. (11)
 

66

 4.25
Share Purchase Agreement between ADB Systems International Ltd. and ADB Systemer Holding as, dated May 18, 2006. (9)
 
 4.26The Audit Committee’s Charter*
 
 4.27Form of Subscription Agreement for June 15, 2007 Equity Private Placement
 
 4.28Form of Subscription Agreement for Series K Convertible Secured Debenture
 
 4.29Form of Series K Convertible Secured Debenture
 
 4.30Form of Subscription Agreement for Series L Convertible Secured Debenture
 
 4.31Form of Subscription Agreement for Series M Convertible Secured Debenture
 
 4.32Form of Subscription Agreement for Series N Convertible Secured Debenture
 
8.18.1          List of Subsidiaries*
 
 11.1
Code of Business Conduct and Ethics of Northcore Technologies Inc.(10)
 
 12.1CEO Certification.*
 12.2Chief Operating Officer.*
 
 13.1Certification pursuant to 18 U.S.C. Section 1350.*
 
 13.2Certification pursuant to 18 U.S.C. Section 1350.*
 
 14.1Report of Independent Registered Public Accounting Firm*
 
 14.2Schedule of Valuation and Qualifying Accounts*
 
 15.1Consolidated Financial Statements for the year ended Dec. 31, 2010*2011*
 
 15.2Form of Subscription Agreement of the Equity Private Placement Closed on Dec.22, 2010*2010

 
 *15.3Form of Subscription Agreement of the Equity Private Placement Closed on Feb.14, 2011*
65
*                      Filed herewith
 
 (1)Incorporated by reference from Exhibit 1 to the Company’s Current Report on Form 6-K, Filing No. 1 for the Month of November 2002, filed with the Securities and Exchange Commission on November 5, 2002.
 
 (2)Incorporated by reference from Exhibit 1.2 of Amendment No. 1 to the Company’s Registration Statement on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on March 30, 1999.
 
 (3)Incorporated by reference from Exhibit 3.27 of Amendment No. 1 to the Company’s Registration Statement on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on March 30, 1999.
 
 (4)Incorporated by reference from the Exhibits to the Company’s Annual Report on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on May 23, 2001.
 
 (5)Incorporated by reference from the Exhibits to the Company’s Annual Report on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on May 17, 2002.
 
 (6)Incorporated by reference from Exhibits to the Company’s Annual Report on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on May 20, 2003.
 

67

 (7)Incorporated by reference from Exhibits to the Company’s Annual Report on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on June 30, 2004.
 
 (8)Incorporated by reference from Exhibits to the Company’s Annual Report on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on June 30, 2005.
 
 (9)Incorporated by reference from Exhibit 99.6 to the Company’s Filing No. 1 for the Month of May on Form 6-K, File No. 001-14835 filed with the Securities and Exchange Commission on May 31, 2006.
 
 (10)Incorporated by reference from Exhibit 99.6 to the Company’s Filing No. 1 for the Month of March on Form 6-K, File No. 001-14835 filed with the Securities and Exchange Commission on March 30, 2007.
 
 (11)Incorporated by reference from Exhibits to the Company’s Annual Report on Form 20-F, File No. 001-14835, filed with the Securities and Exchange Commission on June 25, 2007.
 

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
 

 
NORTHCORE TECHNOLOGIES INC.
By   -sd/-                        
Name:  Duncan Copeland
Title:    Chief Executive Officer
Dated: March 31, 2011By   -sd/-                        
Name:  Jim Mosko
Title:    Chief Operating Officer
NORTHCORE TECHNOLOGIES INC.

 
By: “Amit Monga”
Name:  Amit Monga
Title:    Chief Executive Officer


 

Dated: March 30, 2012                                                                         By:  “Tam Nguyen”
  Name:  Tam Nguyen
            Title:   Chief Financial Officer
 
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